In the UK alone in excess of £50 billion is tied up in overdue payments. Despite this companies are reluctant or slow to take third-party action to collect their cash. Keen to understand what the barriers are to making a decision to outsource, we conducted a poll on LinkedIn, and asked our network why so many businesses would rather sit on ageing debt rather than escalate it to third-party collection.
We all know the reason’s debt accumulates. There will always be a certain volume of accounts that are slow payers or default, and however good your internal team, they are a finite resource. When all in-house efforts to recover an overdue invoice fail and a debt remains unpaid, the team must move on to the accounts where they can make the biggest impact. At this point, escalation of the debt to third-party collection would be the best course of action to secure payment. An outsourced debt collection provider will have the knowledge and capacity to continue chasing payment.
Escalating these stubborn accounts will significantly increase the probability of collecting what is due as well as enabling your inhouse team to concentrate on ensuring other invoices don’t follow suit. However, many businesses do not have an agreed process within their credit policy for how and when debts should be escalated to third-part collection. Unpaid invoices therefore accumulate and it is not uncommon for larger conglomerates to be sitting on millions in outstanding revenues. The results of our survey highlight the following three key reasons.
1. Fear of damaging customer relationships – 56%
The most common misconception is that outsourcing any part of your credit and collections function will have a negative impact on customer relations and future business. In fact, by addressing and removing barriers to payment, outsourcing can enable your customers to continue to trade with you, strengthening customer relations and increasing sales.
A good credit and collections provider will work with you to agree a bespoke collections workflow in a pace and tone which supports your customer relationships and delivers your cash targets. You will be able to review and agree any written correspondence and set the parameters for all voice-calls. Clearly, if you are not prepared to action some consequences at some point in the process, you will impact results. Collections is a balance of carrot and stick. But the right collections agency will have the flexibility within their process to enable you to decide the size of the carrot and when the stick should be brandished!
2. Complex data handover process – 22 %
To start collections, a debt collection agency needs a list of debtors, copy invoices and their contact details – and contact details are optional. Considering the leaps forward we have had with ERP and cash collection software and systems; it is incredible how many businesses still struggle to extract this data. It is indicative of how many cash collection teams are still working with highly manual, legacy processes and how much transformation needs to occur within invoice-to-cash.
3. Other business priorities – 22%
Even when a business has identified an issue within their cash collection process, and have agreed that it needs to be addressed, other business priorities can mean it gets pushed to the back burner. The relentless grind of month-end and year-end reporting, as well as other corporate directives can mean over-stretched CFO’s and finance leaders simply do not have the capacity to keep things moving forward.
It is critical businesses have a clear credit policy which outlines key cash collection targets and the strategy to ensure these are delivered. This can ensure the team are able to make the necessary decisions to meet these targets and avoid delays and the accumlation of ageing debt.
The BSB team have over 30 years’ experience providing global business with outsourced cash collection services, yet we are still amazed by the volume and value of ageing debt businesses have on file. We are also consistently surprised at when a problem has been identified, and there is a decision that working with an outsourced partner is the solution, how long it can take from contract to debt placement.
Statistically, the longer an invoice goes unpaid the harder it becomes to collect, the cost to serve increases, as does the chance of bad debt. Having a clear understanding of at what point it is no longer feasible for your inhouse team to continue to chase payment and a defined strategy for what will happen next in your process is critical to avoid unnecessary delays and ensure you optimise your cash collection.
About The Author
Mark Smith has over 30 years experience optimising cash collection for global blue-chip businesses. Working with clients from a broad cross-section of verticals, Mark and the BSB team specialise in delivering clients custom-made collections solutions that support their brand and customer relationships whilst still achieving those critical cash targets. If your business is sitting on ageing debt and is finding it difficult to take the step to outsourcing, book a call with one of the team here contact the BSB sales team today at business@thebsbco.com or 0116 2182045
