AccountsReceivableOutsourcing131DiscoveringbyDavidSchmidt&MarwanKashouLearntheevaluationfactors,commonscenarios,theadvantagesandthebarrierstoachievingimprovedcashflow,reducedbaddebtandlowerDSOthrougheffectivereceivablesoutsourcingPlanStrategicallythenActTactically:AchievingSuccesswithCommercialReceivablesOutsourcingtolookattheANewWayReceivablesOutsourcingDecisionOverthepastfiveyears,outsourcinghasenjoyedgrowingacceptancewithinthebusinesscommunity.Duringthisperiod,year-to-yearoutsourcinggrowthhasconsistentlyexceeded20percentforcompanieswithover$80millioninrevenue,manufacturersbeingthemostlikelyfirmstoembraceoutsourcing.Inaddition,theout-sourcingoffinancialservicesisseeingfastergrowththananyothertypeofoutsourcing.Receivablesoutsourcingisanimportantcomponentoffinancialservicesoutsourcingandbringswithitalonghistory.Theuseofthird-partycollectionagencieshasbeenawidelyacceptedpracticeforwelloveracentury.Factoringhasalsobeenstandardpracticeformanyyearsinthegarmenttradesandhasmadeinroadsinotherindustries.Banklockboxservicesprovideanotherexampleofthird-partyservicesenhancingthecollectionprocess,asdobothdunningletterandreferencecheckingservices,whichhavebeenusedbythecommercialcreditcommunitysincethe1970s.Ithasalsobeennearlytwodecadessincedeductionoutsourcingfirmsbeganmarketingtheirservices,andtheleadingfirmsinthisnichehavereportedyearlygrowthratesofmorethan40percent.AccountsReceivableOutsourcing133Theseoutsourcingactivitieshavepavedthewayforevenmoreextensivereceivablesmanagementservices.Atthesametime,technologyhasmadeitpossibleforoutsourcingserviceproviderstopro-videseamless,order-to-cashfunctionalitywithoutthecustomereverknowingtheywerenotdealingwithadirectemployee.Notcoincidentally,thesecapabilitiesaddressamarketplacethatisconstantlylookingforwaystodomorewithless.Thecorporatedownsizingsofthe1980screatedavacuumthattechnologyandoutsourcingcontinuetofill.PlanStrategicallyOutsourcinghasmaturedalongwiththereasonscompanieschoosetooutsource.Overtheyears,theprimemotivatorshaveprogressedfrompaintoqualityandfinallytostrategy.Onthemostbasiclevel,outsourcinginitiativeshavebeenbornofpain.Thedecisiontosendanaccounttosomethird-partycollectionagencyresultsfromthepainofnon-payment.Financialnecessityorduress,aswellastheneedforcostreductions,aretypicalmotivatorsonthislevel.Whentheimpulsetooutsourcederivesfromaconcernforquality,theobjectivesaremuchlesstheresultofasurvivalmentality.Flexibility,accesstoexpertiseandimprovedservicearenowthekeyconsiderations.Openingalockboxclearlyhasaserviceimprovementaspectthatderivesfromthebank’stransactionprocessingexpertise.However,asoutsourcinghasmovedforward,itsstrategicbenefitshavegainedrecognition.Whenmanagementcanfocusitstimeandinvestmentsoncoreprocesses,thepaybackfromoutsourcinggrowssignificantly.Thisbeingthecase,thesynergiesderivedfromthestrategicapplicationofreceiv-ablesoutsourcingwillfartranscendtheprimarybenefitsofcostsavingsandserviceimprovement.EvaluationFactorsIfcollectionoutsourcingistobeapproachedstrategically,itneedstoprovideanoveralladvantageintermsofeconomiesofscale,corecompetency,riskandcontrol.Incombination,thesethreefactorscanhaveatremendousimpactonworkingcapitalperformance.Asevidencedbythewide-spreadembraceofvalue-basedperformancemetricssuchasEconomicValueAdded(EVA),cashflowreturnsoninvestmentandeventhatoldstandardreturnonnetassets,thereisagro...
