The Future Of Debt Collection is Outsourcing

The majority of businesses with the exception of pure retailers and restaurants which typically trade in cash cannot survive without offering their customers reasonable periods in which to settle their accounts.

In survival terms for the vendor this presupposes that both supplier and customer have the same understanding of what is "reasonable."

Credit is extremely expensive as the supplier loses money every time a customer delays payment of their account. An invoice for £1000 falling due on the 31st December which is not paid until the 31st March means the supplier loses the use of that money for a quarter of a year.

That money if it had been paid on the 1st January could have been used to buy further raw materials, labour, stock etc to produce more goods which could have been sold within that three month period to achieve a better return.

Supposing your customers take an average of only 6 extra weeks to pay their accounts and your average weekly sales are £4000. You have already paid for the wages, raw materials and stock to produce the £4000 of sales so at any given point you need 6(weeks) x £4000, that's £24000 of finance available in the business simply to run the business!

If you can reduce the credit period to 3 weeks you will instantly release £12000 of working capital to utilise within the business.

The chasing of those debts can also cost the business in terms of the time involved in collecting those debts by somebody whose time can be put to more beneficial use.

It is vital then that you are as diligent as possible in chasing debts and the concept of outsourcing the credit control for your business becomes very appealing.

OUTSOURCING OF SALES LEDGER MANAGEMENT.

Many small and medium size companies are now realising the advantages in the outsourcing of their sales ledger management.

What are the benefits?

Using the specialist's knowledge and skills

Freeing of your own staff to concentrate on other issues

Reduction in costs and overheads

Improved payment times by your customers

Real improvement in cash flow

What level of outsourcing is right for your business?

Each business is different so whether it is appropriate to outsource the whole or only part of the process will depend on a variety of factors:

The potential benefit to your business might be best secured by outsourcing the whole process and saving a full time employee who is not fully employed on the process or releasing the time of a senior manager who only performs the task when a cash flow crisis is recognised.

You may decide to outsource the chasing of the smaller accounts, representing a small proportion of total sales but representing a high proportion of staff time.

You may decide to outsource only debts, which become say 35 days past the invoice date.

You may decide to use outsourcing on a temporary basis to improve cash flow during critical periods such as the year-end when accounts staff are involved in other issues or to cover holiday periods to ensure continuity of the function.

By: David Hecking

Article Source: http://www.directorys.uniquearticles.info

David Hecking is an Accountant who has been providing management information and services to small businesses for over 20 years. His book which explains how to start a Credit Management Service can be found on my website at www.accounting4income.com

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