03/ 28/ 2002
You do the work. You expect to be paid. It seems like a simple formula. But for many small businesses, collecting past-due accounts is costly and time-consuming.
That's why outsourcing debt recovery can be a strategic move for small firms, one that enables them to focus on their core competencies, not on collecting bad debt.
Like many small businesses, CMH Flooring Products, Inc., a Wadesboro, N.C., distributor of flooring products with 150 employees, works overdue accounts internally before about 2 percent are released to ABC Companies, a Buffalo, N.Y., debt-recovery company.
"By the time we turn an account over for collections, we have severed all ties with that customer," says Jim Maples, CMH credit manager. He says those who fail to pay past-due accounts no longer qualify as customers. "It's true, you have to preserve your customer base, but if you can't collect, all bets are off."
At its best, outsourcing is a seamless, transparent extension of a company's credit department. The outsourcing firm contacts customers via a variety of methods to arrange payment in exchange for a percentage of the recovered debt.
A cohesive relationship and a dedication to expedited collections are key elements to getting the most from an outsourced debt recovery firm, says Jeff Ross, the credit manager at Southeastern Equipment, a Cambridge, Ohio, company with 200 employees which sells and leases CASE brand equipment, parts and service.
"We like to make (the debt recovery company) an extension of us," he says, explaining that having one or two contact people at the outsourcing company who are his sole contacts is key to a successful relationship. "I want to work with a central person who understands how we work," says Ross. "And I don't want to be bounced all over their company when I call."
At the core of a successful debt recovery outsourcing relationship is "the ability to help clients separate debtors from customers and having the skills to help an organization prevent customers from becoming debtors," says Scott Jefferson, general counsel for Newton and Associates, a New Orleans, La., debt-recovery firm.
Other elements to look for include:
- Advanced collections technology to track and pursue past-due accounts efficiently;
- An account person who knows your business and is your primary internal resource;
- Locations where you do business. This can be especially important for small businesses with international customers;
- A membership in the American Commercial Collection Agency Association's Commercial Law League, which audits, monitors and bonds its members;
- References from customers and cohorts in your industry.
This article originally appeared in the February/March 2002 issue of MyBUSINESS Magazine.
