Case Study: Improving cash flow for Simmons Gainsford Accountants
“Since we outsourced to Sterling the average time it takes for a client to pay us has been reduced by over 35% and due to the support and advice we have had from Sterling’s debt recovery and legal team our instances of bad debt are virtually nil.” David Pumfrey, Senior Partner.
This case study relates to Simmons Gainsford, a leading London accountancy firm of 14 partners which provides a comprehensive service covering audit, tax and corporate finance to corporates, SME’s and individuals.
Historically credit control had been the responsibility of the firm’s finance team, but with the partners controlling which clients needed to be contacted. This created two problems: The finance team had other responsibilities within its remit, with these tending to take priority over credit control, so only sporadic attention was given to the ledger. The finance team openly stated that credit control was the least enjoyable part of their role, so ultimately it received least attention. Also, the partners were understandably protective of their relationships with clients, often insisting that they themselves be the only one’s permitted to call the client. Hence the majority of chasing by the finance team was by email and letter.
The firm was suffering from late payment and a build-up of ageing debt. The partners were too closely involved in collecting ageing invoices, often avoiding collection activity until well past due date, then leading to a breakdown in relationships and high instances of bad debts.
In house credit controllers or a credit management service?
Simmons Gainsford considered employing additional staff in finance to act as dedicated credit controllers, however, following a thorough review it was decided that an outsourced credit control service would have the following benefits over employing a credit controller:
- Access to expertise, best practice process and technology.
- Cover for absence, so consistency in service.
- Management of performance.
- Flexibility (i.e. the ability to scale the level of service incrementally to cater for growth or seasonal variations).
- Easy access to value added services such as debt recovery and legal expertise.
As some of the stakeholders believed using a third party may have an adverse effect on client relationships the service was tested for 6 months with just three partners. After six months Sterling Credit Management improved cash-flow by 25% without any impact on customer relations. The service allowed the partners more time for fee-earning activities and allowed them to focus their time fully on servicing clients. The partners involved admitted that their customer relations had actually improved once they relinquished all responsibility for collection of payment.
The decision was then taken to roll out the service across the firm. Sterling is now a valuable extension to the business, with the credit control service provided entirely under the firm’s brand, the outsource is completely invisible to the clients. Sterling work closely with the partners, updating them regularly on their customers, and with regular reviews to resolve queries and agree escalation actions.
By working as an extension to the firm’s business, Sterling has been able to improve the overall order to cash process for the firm, from tightening up on letters of engagement and redrafting terms of business, to automation of monthly statements and dunning letters. The firm also uses Sterling’s debt recovery and legal service which has not only slashed their ageing debt and bad debt, but has saved the firm on legal fees.
Results:
- Outstanding debt reduced by 40%
- Cash-flow improved by over 35%.
- Improved customer relations and more regular communication, improving customer service and reducing billing queries.
- Personal relationships between the partners and their clients improved as the partners have no further involvement in discussions regarding late payment with their customers.
- Significant increase in fee-earning time for each partner.
- Continuous improvements to ensure that the entire order to cash process functions efficiently.
- Improvements to up stream processes to reduce the risks of bad debt.
- Improvements to processes so that work is invoiced promptly, reducing WIP.
- Instances of bad debt reduced dramatically.
The firm has been using the service since 2009 with Sterling becoming a valued addition to the business. Sterling’s service manager attends quarterly board meetings at the firm’s office, updating all partners on progress and advising the senior partner on issues and potential improvements. As an additional benefit from the relationship, the firm has introduced many of their clients to Sterling’s service, helping to seal the customer relationship further.