The Benefits of Shared Services
What are the relative advantages of keeping collection local compared with Shared Service Centres (SSC) and with Outsourcing collection to a third party? If reducing DSO is your main priority then your decision should be taking you towards achieving leading practice collection.
Leading Practice Collection cannot be achieved just by having good collectors and good processes and systems. You also need a “leading practice AR environment”. This requires the deal with the customer to be clear and for the company to develop a strategy for each large customer and for each segment of smaller customers. All customer facing staff should understand, and collaborate to achieve, these strategies.
The collaboration between Collection, Sales, Credit Management and Customer Service is much easier when all the functions are in the same country. So if leading practice collection with associated reduced overdues is a high priority, then keeping collection local may be the best policy. Other advantages include easily coordinated dispute management and good customer relationships.
Disadvantages relate to the cost of maintaining and training multiple collection teams.
Shared Service Centers (SSCs)
Centralizing collection to one location can often result in an overall reduction in the number of collectors and therefore costs. Training becomes easier so collection skills may improve and introducing collection software is easier to justify. SSC tend to be efficient at handing high volume low value transactions.
Disadvantages. The removal of the collectors from a country makes it more difficult for the collaboration between customer facing functions especially collectors and the sales team. This can be overcome by setting up regular communications for coordination and collaboration. Language can also be an issue.
The advantages of SSCs – reduced cost of collection, easier training and application of software also apply to Outsourcing.
Disadvantages. The disadvantages SSCs also apply but there can be other disadvantages of handing over collection to a third party. The first thing to say is that the outsourcer is likely to have a different agenda to their client. This means they will want to reduce costs and increase fees when possible. So their client loses control of the collection resource and may not enjoy the level of saving expected over time.
Outsourcing organizations tend to employ inexperienced young graduates in their collection centers and this can lead to a high levels of staff turnover that can undermine relationship building with client’s customers.
Developing communication and collaboration between collectors in an outsourced facility and staff in the countries is considerably more difficult especially if this requirement is not written into the agreement at the outset.
If your prime objective is to minimize your DSO then local collection may be the best option (all other things being equal). If you cannot find good collectors locally or are struggling to provide training and collection software to local collectors then an SSC can lead to consistency and control and lower costs and lower overdues providing there is a focus on communication and cooperation with the countries.
The only real advantage that I can see in Outsourcing over a SSC (apart from a reduced headcount that, in reality, is only swapping one cost for another) is that you can pass over a poor inefficient process for another organization to sort out. But, remember they will make money out of sorting it out; and you will pay! It is usually better to improve the collection process before handing it over and then ask yourself – “What are the benefits of handing over a significant opportunity of customer contact to a third party?”