Back in May 2011, we published an article entitled How to Outsource Debt Collection and Manage Credit Risk, outlining how firms might find it beneficial to outsource some aspects of credit control, in order to make up for a lack of in-house admin capacity for chasing overdue accounts, and so on.
We’re delighted to see this article is still helping our website visitors – and one recent visitor, Kinjal, asked for clarification on a few aspects of outsourced credit control:
“One of the concerns I have regarding outsourcing is the ability to measure/control the performance. Any suggestions on what is the set of metrics that can help ensure that I have adequate visibility into the performance, and what kind of governance mechanisms can help me ensure that I can step in at the right time as required?”
The simple answer is, when you outsource credit control and debt recovery to CPA, you have total transparency to measure performance according to any metrics relevant to your business.
For example, as a general rule of thumb, you can divide your total trade debtors by your total annual sales, and multiply the result by 365 to give you your average collection period.
This ratio offers an idea of how many days, on average, it takes you to collect trade debts – or to put it another way, how many days’ credit you are allowing to your debtors.
With the help of an outsourced credit control company, you can work to bring this figure down to your chosen target – for example, if you offer 30-day terms to your customers, your ultimate target collection period would reasonably be 30 days or thereabouts.
Importantly, CPA collections are paid directly to the client, so you can always see which of your customers’ debts are outstanding – there’s never any funds ‘resting in our account’ on their way to you.
As such, when you calculate your chosen KPIs, you are getting a true figure, with no delays or error margins created by us holding funds on your behalf.
Finally, aside from the obvious advantage of having an outsourced credit control team pursuing your debtors, there is one essential piece of feedback we provide to all of our clients that can help you to remain aware of how you are performing on your credit control and collections processes.
That is because we will regularly update you on any problem clients, not only to let you know how things are proceeding, but also to ensure you are happy with any actions we suggest taking on your behalf.
In this way, while you are in direct control of the majority of your finances and collections, we also make sure you have the final say on any recovery actions undertaken on your behalf too – and together, this all means you have total transparency in terms of how you are performing in-house, and how our outsourced credit control is performing for you.