Harnessing the power of third-party collections

Working in credit brings new challenges each day, whether you are deciding on the ideal credit line for a risky customer or analyzing complicated financial statements. With the role of credit managers expanding each day with new responsibilities, outsourcing tasks within the credit department can be a key part of the risk mitigation strategy.  

Why it matters: Collections function poses a myriad of problems for credit managers already busy with credit tasks, making it one of the first processes many departments may decide to outsource. Third-party collections enable efficient cash flow by having dedicated collectors pursuing a business’s debts rather than overwhelming the credit department.  

“Outsourcing collections allowed my team to concentrate on other key elements of running a business, such as extending credit, working with customers and helping grow sales,” said Rocky Thomas, CCE, CICP, president of NACM Southeast (Duluth, GA). “Collections takes time, and not all credit managers are great collectors. But a third-party agency has the skill set, the expertise and negotiation skills, which helps as they work with customers to obtain payment.” 

Specializing in collections means third-party collectors are well-versed in the legal aspects of debt collecting, which can be immensely helpful for newer credit managers who are less familiar with the process. “Outsourcing collections protects you from a compliance standpoint because a lot of times companies cross the line,” Thomas said. “If they don’t have an experienced staff, they’re going to cross the line and put the account in jeopardy because they’ve broken the Fair Debt Collection Practices Act and other collection regulations. A third-party agency is going to know all those rules and keep you in compliance.” 

A third-party collection agency can serve as an extension of the credit and collections operations. “In many ways we can do it better and more effectively than a credit department can because third-party intervention tends to be more intensive,” said Bill Hines, collections manager at NACM Southeast (Duluth, GA). “It could be a more strenuous, stringent means of collection that could include going to court and having to defend this action and have the customer pay out of pocket, risking their credit reputation to companies that report credit.” 

Stronger collections efforts can lead to increased cash flow, as credit managers are able to focus their time and resources on more recent receivables while older debts are relegated to a third-party collector. Within the credit department, procedures can be written so that when customers are a certain number of days past due, they are automatically turned over to a third-party collector, effectively helping credit managers delegate the more difficult accounts.  

“Outsourcing helps free up the internal department to manage the more collectible debts,” said Greg Garner, vice president of strategy and collections for NACM Commercial Services (San Diego, CA). “The older the account becomes as an uncollected matter, the less likely it is that it will be collected. As a general rule in commercial collections, an account that has hit the 90-days past-due bucket on an aging has eroded to about a 70-72% chance of that creditor collecting 100 cents on the dollar.” 

When it comes to choosing a collection agency, it is important to take the time to fully vet the agency, embarking on an investigation not unlike your customer screening process. “When shopping for an agency and trying to determine the best fit, look into the tenure or the number of years of experience that the actual collectors have,” Garner said. Of course, turning to your NACM Affiliate is always a strong choice as your representative. NACM’s collection services can recover money quickly—while relieving credit departments of burdensome, time-consuming tasks. Using only dedicated collection professionals and the latest technology. credit department staff will have more time to pursue more current accounts and use their time and energies more productively. And NACM meets or exceeds recognized industry norms for administering claims and collecting difficult account balances.

The bottom line: Leaning on third-party collectors to handle the more frustrating past-due accounts can allow credit managers to focus on extending credit. By outsourcing this function of the credit department, credit professionals can lighten their workload so they can focus on the credit tasks that can improve cash flow.