September 21, 2023

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Outsourcing the Order-to-Cash Process

Jamilex Gotay, editorial associate

In an ever-evolving global marketplace, outsourcing has emerged as a strategic tool that businesses of all sizes leverage to enhance efficiency, reduce costs and remain competitive. Credit departments may choose to outsource certain credit tasks on a permanent or temporary basis depending on the needs of the company.

A recent eNews poll revealed that 83% of credit departments do not outsource any part of the order-to-cash process. Although outsourcing is not for every company, credit professionals should be aware of what credit tasks are best-suited to be outsourced as well as the advantages and disadvantages of outsourcing.

Advantages of Outsourcing Disadvantages of Outsourcing
    • Decreases fixed costs
    • Communication issues
    • Workflow flexibility
    • May require long-term commitments
    • Access to expertise you may not have in-house
    • Loss of control of a key financial decision-making process to a third party
    • Allows team to focus on strategic tasks
    • The quality of service may not meet your needs
    • Access to advanced software and technology
    • May affect the morale of existing credit team members

The Case for Outsourcing

There's a prevailing belief that outsourcing results in job loss and that the quality of the product or service will not meet standards. But outsourcing some order-to-cash functions gives credit professionals more time to conduct thorough credit investigations and lead strategic initiatives. Advancements in technology have allowed companies to outsource some aspects of credit and collections without losing control because many outsourcing firms provide real-time, web-based reporting.

Customer-facing tasks are better kept in-house. Michelle Russell, corporate credit manager at Avery Dennison Corporation (Mentor, OH), outsources pieces of every function within the order-to-cash process: credit, collections, cash applications and bankruptcy. “The strategic accounts are kept in-house and the non-strategic accounts are outsourced,” she said. “Reporting can be time-consuming and so can managing the customer payment portals. Outsourcing these tasks frees up time for the local credit team to focus on more important tasks.”

Valarie Hardesty, CCE, CICP, director of credit at Elevate Textiles, Inc. (Charlotte, NC), has a Shared Services Center at one of their locations in India to complete accounting, financial reporting, accounts receivable (AR) and accounts payable (AP) duties. “We outsource tasks such as AR credit and debit memo creation and non-time-sensitive customer contact projects such as changing from check to ACH payments, invoice email verification, escheatment, refund processes and small balance collections through email,” she said. “The team members in India are highly skilled and have a standard operating procedure they intently follow.”

Outsourcing helps larger companies with high volume of turnover or sales where there is insufficient staff. For example, outsourcing can help fill the gaps if your credit department has a high turnover rate, said Pamela Krank, president at The Credit Department Inc. (Saint Paul, MN). “It sometimes makes more sense to outsource multiple different tasks if you are having trouble retaining staff,” she said. “Outsourcing is a good option for companies that don’t already have a strong infrastructure or they’re growing really fast and just can’t keep up with what’s happening.”

The Case Against Outsourcing

Outsourcing credit tasks may make some customers feel that they’re not receiving the same level of attention and professionalism that they received from credit department. Outsourced teams may have differences in languages, customs or work habits. “With outsourcing, accounts are not always managed effectively,” Russell said. “Issues with following processes and customer interactions may arise and result in inefficient communication with customers where customers avoid you or do not return calls.”

Many companies keep more difficult or complicated tasks in-house, such as customer disputes, high-volume customers or key accounts. More profitable companies are in a better position to take more risks, which could result in a different credit philosophy. They could consider outsourcing the entire credit function to give the company more resources for strategic initiatives.

Complex tasks can be outsourced successfully, but it is dependent on the team structure, leadership and change management. “All the same things we know about how to build a high performing team in the U.S. are just as true for the people who are outsourced,” said Rachel Layman, collections manager at SoftwareOne, Inc. (Milwaukee, WI). “Unfortunately, management outside of the U.S. does not always understand these principles or have this mindset, so it’s extremely important for the responsible U.S. leadership to stay close and help them along the journey.”

Some credit professionals use automation instead of third parties to delegate credit tasks because they want to focus on quality and accuracy. Christian Pedersen, CCE, corporate credit manager at Emcor Services Aircond (Smyrna, GA), is planning to use artificial intelligence for processing credit applications and credit reports. “We don’t plan on outsourcing anytime soon as having the proper documentation in-house is of the utmost importance,” he said. “Some tasks such as invoice uploading or collection calls could be outsourced if it were more beneficial for the company but at the moment it’s not.”

Denise Boock, CBA, ICCE, credit manager at J&B Group (Saint Michael, MN), uses an enterprise resource planning (ERP) system to automate administrative tasks in the credit department. “We also have a talented IT team that created workflows to make routine tasks more efficient and we can handle the volume we receive since we do not have a large number of new applications coming in.”

Mallory Bell, accounts receivable specialist at Leslie Enterprises, Inc. dba Dupree Building (Spokane, WA) and NACM Commercial Services Board Director, has a smaller business with lower sales volume in which outsourcing is not necessary. “We have a good accounting team that works well together which makes the order-to-cash process manageable,” she said. “We also like to build those personal relationships with our customers, so having instant access to all the information and direct contact with the customers helps with that.”

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What Kind of Leader Are You?

Jamilex Gotay, editorial associate

Finding your leadership style is a journey of self-discovery and continuous growth. It begins with introspection and an honest assessment of your strengths, weaknesses, values and beliefs. Understanding who you are as a leader is the first step before successfully leading a team.

Leadership is a mixture of nature and nurture. Depending on your characteristics, you may be inclined to lead with a certain style. But external factors also impact leadership. For example, are you leading a team from a younger generation? Is your organization going through some major changes? Your leadership style can change, and while it is important to know the approach you often lean towards, you should not force any single leadership style.

By recognizing your natural tendencies and adapting your style to different situations and teams, you can develop a leadership approach that resonates with your authentic self while effectively guiding and empowering others.

Common Leadership Styles

  • Autocratic/Authoritarian: focused primarily on results and team efficiency in a structured environment.
  • Bureaucratic: focused on fixed duties within a hierarchical system, where each employee has a set list of responsibilities and there's little need for collaboration and creativity.
  • Coaching: recognize their team members’ strengths, weaknesses and motivations to help each individual improve.
  • Laissez-faire: focused on delegating many tasks to team members and providing little to no supervision.
  • Democratic: a combination of the autocratic and laissez-faire leadership styles. A democratic leader asks their team members for input and feedback before making a decision.
  • Pacesetter: focused on performance, setting high standards and holding their team members accountable for achieving their goals.
  • Servant: emphasis on employee satisfaction and collaboration to meet company goals and grow personally and professionally.
  • Visionary: focused on driving progress, inspiring employees and earning trust for new ideas, especially during organizational change.

Don’t limit your leadership style to the ones listed above. Brendon Misik, CCE, CICP, senior manager of Ag credit at PCS Admin USA Inc. Nutrien (Deerfield, IL), uses William Moulton Marston’s DiSC emotional and behavioral self-assessment to define his leadership style. “After having different leaders, I’ve picked up leadership skills from leaders that exhibit the (C)onscientiousness and (S)teadiness qualities that look to lead with empathy,” he said. “I found the leadership qualities of (D)ominance and (I)nfluence leaders don’t fit with my personality. Instead of directing my team on what to do, I support them by removing roadblocks and improving efficiencies with bottlenecks.”

Developing Your Leadership Style

In order to find your leadership style, get to know yourself first. “I think you really have to know who you are and your core values,” said Tracy Mitchell, AR senior team lead at Trinity Logistics (Seaford, DE), who uses a servant-style leadership to manage her team. “You have to understand your personality strengths and weaknesses and ask for feedback on your leadership from everyone that you relate to, whether it’s a team member or senior management. Be open and speak to more senior leaders about what makes their leadership style so effective and form an action plan to decide what you want to do with that information, what type of leader you want to be and where you want to go to make that happen.”

Another way to develop your leadership style is to model it after leaders around you. “An exercise that I would encourage everyone to do is to think of the best leader you've ever experienced,” said Hailey Zureich, certified life coach and corporate trainer at ZHailey Coaching, LLC (Ferndale, MI). “Maybe it's after a manager at your first job working at an ice cream stand or a coach on your sports team. When you think about that leader, try to identify the three things you admire most about their leadership style and ask yourself how do you exhibit those traits. It also helps to think about the worst leadership experiences you've had and what can be done to avoid them.”

Leadership is a process that is developed over time and can be influenced by external factors such as location, company, culture and people. For emerging leader Alisha Gray, purchasing manager at Orgill Inc. (Collierville, TN), it’s dependent on who she’s working with, especially when it’s with different generations. “I have to read the room and the person who I'm around to know what style to apply,” she said. “Depending on those factors I can adjust between my main leadership styles, coaching, servant or transformational to see what works best.”

For some, it’s not the leadership style that changes but the way they communicate with their team members. “Everybody hears and receives information differently, but it doesn’t change the way that I’m leading them, I just have to communicate differently with the individual,” Mitchell said. “The senior leadership for my company from the executive leadership team to middle management to the team leaders practice servant leadership and devote their time to help people understand and be able to meet the company’s expectations. They provide them with the necessary resources, education and technology for them to help make the company successful. I think the most influential factor is the leaders around you that make an impact on you.”

To connect with other credit leaders, be sure to inquire about NACM’s Leadership Thought Discussion Group or Emerging Credit Leadership Thought Discussion Group.

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The Costs of Customer Pushback Terms and Web Billing Portals

Kendall Payton, editorial associate

The practice of customer pushback on the payment terms offer by their vendors is forcing the hand of creditors. If they accept the longer terms demanded by the customer, it will be extremely difficult to return the terms to the previous level. If creditors deny the longer terms, they run the risk of losing their customer.

It’s the act of forcing the creditor to accept the debtor’s payment terms in order for them to restructure or fund their own internal projects in lieu of borrowing from their own bank, said Heidi Lindgren-Boyce, CCE, NACM board director and senior credit manager at Star Rentals, Inc. (Kent, WA). “When this happens, banks will charge interest and late payment penalties,” said Boyce. Customers are using their vendors for interest free financing through longer payment terms.

With the rise of digital payment options, customers can create portals with specialized terms and rules for creditors to follow. Some customers will try to include pay-when-paid or pay-if-paid terms into their contracts. This puts the creditor in a difficult position because then you are relying on your customer to vet their client in order to pay you. “The best-case scenario is if the lender or owner pays your customer you will get paid,” said Boyce. “Worst-case scenario would be any delays. For example, any large federal projects that delay out up to six months can cause you to go 6 months up to a year without getting paid.”

Before you agree to use any customer’s billing portals, you must ask a few important questions. For example, SAP Ariba is a common portal for payments. You must understand how your customer is using the portal when doing any onboarding or system integration practices. “Any new customers who go to Ariba have to follow a few important requirements,” said Kimberly Tatum, credit manager at Ferguson Enterprises, LLC (Baytown, TX). “They must have a purchasing contact for process problems, an AP contact for payment remittance information and an Ariba technical support contact name, as well as a backup Ariba technical support contact.”

For existing customers, this process can take up to six months to change, so credit professionals should also consider that before integrating Ariba. “I find line-item credit very confusing for the customer because most of the purchasing team is not familiar with it,” said Tatum. “Most of our customers have someone who created a user guide for their internal users. I see it at larger companies I used to do consulting for with this integration situation, and most aren’t aware that they have user guides.”

It is important to ensure you and your team understand the fine print of customer billing portals and any pushback terms customers may want to use. Understand the true math of customer pushback payment terms along with any costs of billing portals, discounts, rebates or customer add-on fees. “Always be ready to present this information to upper management,” said Boyce. “You have to know the true costs of doing business.”

The content for this article came from live sessions at the 2023 NACM Credit Congress in Grapevine, TX.

Be sure to join the upcoming Credit Congress Spotlight Session, SAP Ariba: Why Asking the Wrong Questions Could Be Hurting Your Working Capital on Thursday, Oct. 5. The new Credit Congress Spotlight Sessions are the perfect opportunity to savor a slice of the exceptional education that Credit Congress delivers annually. Credit Congress Spotlight Sessions feature some of the most insightful presentations from this year's Credit Congress event. You can register for the full series for $399 per person or join the Unlimited Webinar Program (BEST VALUE) for $1200 for your entire company to participate in all webinars for a full year.

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When Escheatment Becomes a Credit Manager’s Problem

Jamilex Gotay, editorial associate

Escheatment is a legal process by which unclaimed or abandoned assets, typically financial assets like bank accounts, uncashed checks, or securities, are transferred to the government. This occurs when the rightful owner of the property or funds cannot be located or identified after a specified period, known as the dormancy period. The account or property can be reclaimed if someone emerges with a legal claim, but reclamation is generally subject to a statute of limitations. Statutes not only vary by state, but by property type with costs that continue to increase.

When a customer overpays on an invoice, it can lead to an unclaimed property audit as part of escheatment, said Troy Wangen, principal at Baker Tilly US, LLP (Chicago, IL). “Maybe that customer has become inactive and you can no longer contact them,” he explained. “So, after a period of time, if you can't contact them, that credit would need to be reported to the state of the last known address of that customer. If there’s no known address, it becomes an unknown or unidentified payment, which gets reported to your company's state of incorporation.”

If you send a check for the overpayment to a vendor, employee or customer, there's a chance they might not receive or remember it. As a result, they do not cash the check. The check then becomes escheated and the state must collect the funds. The payee who did not cash their check before it became escheated can apply to their state to claim it. “The escheatment process could affect vendor and employee payments for businesses, and if you're a public company shareholder, depending on your industry, there could be multiple property types that could become an issue for you,” Wangen said.

The cost of escheatment can grow quickly because it’s tied to the number of possible properties rather than the value of them. It costs just as much to process an unclaimed payment of $5 as it does for $500 or $5,000. “And if the property is not escheated, significant fines and penalties can be levied by the state that date back several years,” according to U.S. Bank. “The time and effort spent on escheatment is work that creates no true value. After all, the money identified during the process is either returned to its rightful owner or turned over to the state. However, doing it more efficiently can at least cut down some of the costs. New technologies available because of improvements in smart devices and digitization of payments can help considerably.”

Annual escheatment compliance is important as states often engage third-party auditors for intense audits both in the sense of time and resources required. If unclaimed property goes unnoticed for years, then all records must be reviewed for those number of years. “Oftentimes, there may be an overpayment or credit on an account unnoticed for years that is not yet considered unclaimed but rather dormant and that property is potentially achievable,” said Jennifer Waryjas, Esq., counsel at Jones Day (Chicago, IL). “So, auditors will come in to review those records and ask why you didn’t achieve this dormant property in compliance with state law and do an audit for that entire five or more years of records. It’s incredibly complicated and it’s time intensive because you're looking at customer balances, which include multiple write-offs you have to defend based on financial analysis.”

To prevent the intense escheatment process, trade creditors must keep constant communication with their finance and compliance departments to make sure that the entire company is reviewing unclaimed property. This includes accounts payable, benefits and payroll. Credit professionals must also work with the marketing and legal departments to set rebate program requirements in order to avoid escheatment compliance issues.

Credit managers should be making sure that they’re part of the process when it comes to terms and conditions and rebate programs. “If you're saying that the rebate is only eligible for a new product, but not for cash, you have to follow that rule,” Wangen said. “So, you may have one or two customers that you don't want to lose, and you agree to give them the cash instead of allowing them to use it just for the product. If you do that, you've kind of pierced the veil of then allowing the state to be able to get cash for that. Suddenly, those rebates that might not be unclaimed property have become unclaimed property.”

Be sure to join the upcoming Credit Congress Spotlight Session Escheatment Boot Camp on Tuesday, Sept. 26. The new Credit Congress Spotlight Sessions are the perfect opportunity to savor a slice of the exceptional education that Credit Congress delivers annually. Credit Congress Spotlight Sessions feature some of the most insightful presentations from this year's Credit Congress event. You can register for the full series for $399 per person or join the Unlimited Webinar Program (BEST VALUE) for $1200 for your entire company to participate in all webinars for a full year.

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