THE BENEFITS AND RISKS OF OUTSOURCING CREDIT CONTROL

Healthy cash flow is crucial to the success of any business, so it’s amazing how many businesses neglect their credit control function, employing inexperienced workers, relying on a receptionist, or even worse having one of the Directors do it when they find time.

The benefits:

Outsourcing the credit control function to a specialist ensures the task receives a consistent, focused, expert approach to manage the sales ledger effectively.

Improved cash flow

All of Sterling’s clients have seen improvements in cash flow with the average being 30%, and some gaining from far higher improvements. Speeding up payment of invoices reduces the cost of borrowing, increasing profit and working capital, allowing for investment in growth. You can see the effect improvements in cash-flow can have on a business by using our cash flow calculator.

Reduced bad debt

The longer a debt goes unpaid, the more likely it becomes that it will not be paid at all. An effective credit control function will use an escalation process to ensure that you are paid as a priority, whereas a weak credit control approach will leave your invoice at the bottom of the pile, with an increased probability of it becoming a bad debt.

Sterling’s service uses a defined escalating approach (tailored to suit each client), collecting in a professional but determined manner. We also monitor credit reports, but more importantly we monitor payment behaviour, reporting potential risks back to our client, so that a business decision can be taken as to whether to put your customer on stop. (Changes in payment behaviour usually occur well before any indication on credit reports.)

Maintaining relationships

Whilst a credit control team’s key role is to collect cash, this should not be to the detriment of customer relationships. A professional outsourced credit control company will ensure that your customers pay promptly whilst receiving excellent customer service. Often payments are delayed due to outstanding queries, handling queries professionally and efficiently improves customer satisfaction and speeds up payment.

Sterling allocate named credit controllers to each of our clients, so they can build relationships with both internal stakeholders and customers. We work entirely under our client’s brand, maintaining and improving customer relationships and the customer experience. Each of our clients is different, we adopt an approach aligned to each client’s business values.

Access to expertise

Outsourcing credit control can give a business access to a range and depth of expertise that would be impossible to source in house.

With over 50 staff, including 40 experienced credit controllers, Sterling has experience in a wide range of business sectors, accounting systems and technologies. Our expertise can lead to process, procedural and technological improvements with new clients, but mainly it means that we are able to deal with any situation which arises without the need to involve external resource. Our credit controllers have the ability to escalate issues to team managers, and to our service manager if need be, and problem accounts can be referred to our own debt collection team or in house solicitor. We provide advice to our clients on tightening up sales processes and terms of business to improve the overall order to cash process. And importantly, when there is a problem debtor we work in a manner that gives our client the most profitable outcome, rather than pursue a case in court that is only profitable for the solicitors.

Focus on core business

An in house credit control team can demand significant management time, distracting from more profitable activities. Staff turnover for the role tends to be relatively high, especially in SME’s. Recruiting and training to replace a credit controller can be a costly and time-consuming process.

Outsourced credit control is usually provided as a managed service. Each of Sterling’s clients benefits from a named credit controller (or controllers depending on the size of the requirement), reporting to a team manager and a service manager. The management time required by our clients is kept to an absolute minimum, with most clients it is as little as a short monthly or quarterly performance review call.

Reliability

In order to maintain cash flow and guard against bad debt the credit control function must operate consistently to keep on top of the ledger. Absence and sickness in a credit control team can have a massive effect on performance, and can have an enduring effect as the credit controllers struggle with backlog.

Like any good outsourced service, Sterling’s solution includes trained absence cover, so that the service works each day without fail.

Flexibility

Businesses often experience periods of growth or decline, and many sectors have seasonal variations. Employing the optimum level of in house credit control staff is almost impossible, even part-time workers demand stable hours and have little room for variation. The result is that an internal team is usually under or over resourced.

Outsourcing allows the business to specify the level of weekly resource to be assigned to the service, from as little as half a day per week* upwards. Sterling’s service can ‘flex’ to meet the changing needs of a client.

In addition, using a good service provider allows the business to alter the scope of the function to absorb additional tasks from in house staff, or to provide absence/maternity cover. Whereas our clients most commonly come to us for collections, Sterling are able to manage the complete order to cash process, from new client take on, invoice production, payment allocations, query resolution, etc. In addition our finance outsourcing team provides a complete outsourced finance back office service, so that the entire finance function can be outsourced.

*Where Sterling provides less than full-time service we will still respond to incoming calls throughout the week, so our clients enjoy the benefits of a full-time credit control team at part-time cost.

Cost

Outsourcing credit control can have a very positive effect on the profit of a business due to improvements in cash flow and reduced bad debt. However, the direct cost of outsourcing the function also usually works out to be lower, especially when considering the true costs of employing in house. (There are many online tools which can be used to calculate the true cost of employees, with the true cost generally around 140% or 150% of salary.)

Adding the flexibility factor above, and the fact that credit controllers working for a service provider tend to be more productive, the cost of outsourcing can be significantly less. For example where the client might employ a full-time in house credit controller, they may only need 3.5 days per week service from Sterling to manage the sales ledger more effectively.

Staff turnover for credit controllers tends to be high, particularly in SME’s where they may be the only one doing the job in the business. The cost of recruiting and training can be significant, and of course the upheaval can have a dramatic effect on cash-flow.

The risks:

As with outsourcing any business function, there are associated risks to consider which can be mitigated by choosing an established service provider that is able to advise on and manage potential problems.

Although it is often not given the priority it deserves, credit control is a business critical function. A poorly managed sales ledger can have a massive effect on a company’s bank balance and can bankrupt a business. The decision to outsource, and the choice of provider, should not be taken lightly.

Loss of control

When outsourcing a key function, particularly one that is customer facing, there is often a worry around loss of control. Stakeholders are used to having a credit controller in the office, and have the impression that this allows them to monitor their performance more easily.

Sterling’s outsourced service is designed to give each client complete visibility of activity and progress, and as much control over process as they wish to have. Notes are made on the sales ledger for each action/communication so that the client has a real-time view of activity, with weekly and monthly activity and performance reports and review calls. Clients can choose whether or not an internal stakeholder must authorise certain actions such as sending a final demand or putting a client on stop.

Being tied in long term

Many outsourcing providers insist on the service being based on their own internal software, which can make integration with the client’s infrastructure difficult, and can make things more difficult should the client choose to terminate service (in this case all historical data is usually lost).

Sterling’s service is always based on our client’s systems, we become an extension of the client’s business. We have experience of working on Sage (various versions), Xero, Quickbooks, Oracle, SAP, Dynamics, and Netsuite amongst others, along with associated 3^rd party systems. This means that we are always working on the same data as our client, with the client maintaining ownership.

Sterling create a full, detailed service manual for each client which is updated as service evolves. The manual is shared with the client, easing a move in-house should strategy change.

Communication

Stakeholders often worry about a breakdown in communication when a business function is moving out of the office. In reality there is often little face to face communication between stakeholders and credit control in the office, with communication often being via email and phone. However, it is important to choose a service provider that dedicates a named individual to service, with a dedicated phone line rather than a call centre approach.

As part of working as an extension of our client’s business, Sterling communicate with our clients using their chosen methods. Our client can choose to have very regular or minimal communication with Sterling, depending on the need and the culture. Increasingly clients are adopting instant messaging platforms so that they can communicate with staff and service providers in real-time. Sterling provide a dedicated phone line for each client (either with a local code or coming off the client’s own switchboard/voip system) so that the credit controller appears to be in the client office. The line is answered throughout the week in the client’s business name.

Damage to customer relations

When a business outsources credit control they pass on responsibility for sensitive customer communications to a third party. A service provider has the ability to ruin or improve customer relationships that have taken many years of investment. A good service provider will take account of the client’s business culture, tailoring their approach to match this.

Sterling’s credit control service clients come from many sectors; from a waste management company to a global marketing technology provider, but many of our clients are from professional services sectors where invoice values are high and the customer relationship is extremely sensitive (for example accountancy firms). Our credit controllers are trained to achieve payment whilst maintaining a positive relationship. Our service is proven to improve customer relationships, removing the difficult conversations from our client so that they can focus on gaining new business.

Data security

When outsourcing credit control the business is trusting a service provider with commercially sensitive data, i.e. their full customer list along with pricing details. Any agreement to outsource credit control should include a watertight NDA, but more-so, the client should be confident that the service provider has technology, processes and procedures in place to protect their data.

Sterling operate from a secure service centre with regular and stringent IT security audits to achieve PCI compliance as a minimum. Our processes and procedures around service, and infrastructure and employee checks mean that our security levels almost always exceed those of our clients by a considerable margin.

High staff turnover

Corporate level outsourcing service providers often suffer from high staff turnover, particularly in areas such as transactional processing, credit control, and customer service roles. The same is so for in house credit controllers, where the role is often seen as a stepping-stone to something more attractive.

Sterling has been able to hold an extremely low staff turnover rate of less than 5% per annum. Our credit controllers work in an environment where their role is the core business, and their efforts are recognised. Working in small teams in a 50 man business, each employee’s performance is appreciable and there are opportunities for development. This means that our clients are able to build relationships with longstanding, experienced staff managing their ledger long-term.