In Part I of my Taking the Pain Out of Collection Claim Processing series, I described the importance of maximizing recoveries.  In Part II I will describe how you can use collection agencies as a strategic resource to help you maximize recoveries.  When you have an agency relationship that is built on close collaboration, there arise multiple opportunities for you to leverage their expertise from either a 1st party (outsourcing) or 3rd party (claims) collections perspective. 

• Improve Collection Efficiency – no matter the external conditions, the strategic use of your collection agencies 1st and 3rd party resources can help you optimize your collection process
• Mergers and Acquisitions – when combining two receivables portfolios, agencies can be a tremendous help in cleaning up the acquired AR allowing internal staff to focus on current business activities
• Staff Reductions – When credit departments are downsized, agencies can pick up some if not most of the load
• Tough Economic Times – Faced with a deteriorating economy, pro-actively working with your agency can help your firm recover past due receivables from troubled customers ahead of your competitors
• Turnaround Situations – If you are a new manager hired to clean up a credit department, collection agencies can get the situation under control in much the same way as with a M&A scenario – the same for bankruptcies, liquidations and reorganizations
• Seasonal Variations – Some companies will experience seasonal variations in their collections volume or will have invoices that come due at a particular point in the year. Due to these surges in activity, many will engage a collection agency during these peak times

In all these scenarios, the right mix of in-house, 1st party, and 3rd party collections helps creditors balance collection efficiency and cost. This is because if everything is done in house, improving performance requires either automation or additional staff, and both involve expenditures. The counterpoint is, if there is too great a reliance on claims placement, collection costs will swell. The idea is to utilize your collection agencies in ways that free up your staff so they can spend more time on risk analysis, problem resolution and other tasks that are unsuitable for an external partner to perform.

By balancing the higher efficiency of an agency in regard to completing collection calls (both high volume 1st party calls and collection efforts directed at intransigent accounts) against your credit departments capabilities and strengths you optimize your entire collection process. That naturally results in DSO and bad debt loss reductions. The key element here is to truly understand your own business so as to optimize both internal staff and partner agencies.

Stay tuned for Part III in which I will describe the challenges that occur in the traditional claims process.

Do you work with your collection agencies as if they are a strategic partner? I’d like to hear from you…