Report: Outsourcing Commercial Collections Adds to Company Value

Engaging the services of a commercial collection company is about safeguarding the assets of a company, which is imperative for any company’s financial well-being, according to a special report from global accounts receivable management service provider Euler Hermes ACI.

"Effective collection of receivables is crucial to improving a company’s days sales outstanding (DSO), which condenses the revenue cycle and creates working capital and additional borrowing capacity, thus adding value to the company," said Michael T. Puckett, President of receivables outsourcing provider Euler Hermes UMA. Euler Hermes UMA is the commercial collections arm of the Euler Hermes ACI organization.

In the report, titled "The 411 on Outsourcing Commercial Collections,"
Puckett explains that many companies – whether large or small – do not have staff with the necessary expertise to effectively manage the commercial collections function. "Internal credit management staff members typically are not trained for collection, which requires excellent communication skills to maximize efforts," he said. "By using an established provider of accounts receivable management, a company can keep its internal credit management staff focused on the function for which it is trained.

Additionally, through outsourcing, a company can eliminate in-house costs in a way similar to utilizing a payroll company or benefits management provider."

Puckett also stressed the need to establish a good collections reputation with customers as part of an effective accounts receivable management strategy. "Early placement policies and systematic pursuit of slow and non-payers will announce to customers and prospects alike that your company is serious about collecting what is due for goods or services," he said.
"The opposite perception is no advantage in the marketplace."

Businesses across the nation are beginning to experience problems collecting on invoices, as evidenced in the April Credit Manager’s Index survey from the National Association of Credit Management. "Weakness in collections suggest that businesses are having cash flow problems, reflecting the erosion of the economy as a whole," said Euler Hermes ACI Chief Economist Dan North, who provides commentary and analysis for the monthly economic survey. "Credit managers are starting to feel the effects of a deflating housing bubble and a slowdown in the economy caused by the Federal Reserve’s monetary tightening. This is evidenced by businesses in both services and manufacturing that have been particularly hard hit by the slowdown."

Accounts receivable typically represent more than 40% of a company’s assets, so naturally they constitute a vital component of a healthy business, said Puckett. "Cash flow, earnings, and capital will be harmed if a major customer is unwilling to pay its obligations, or if several customers are unwilling to pay their invoices. Thus, employing an effective strategy for accounts receivable management – with the right commercial collections partner – can protect the cash flow of any company, large or small," he concluded.