Credit Control Outsourcing FAQs: Everything You Need to Know

Over the years, businesses have slowly embraced the idea of outsourcing their finance and accounting functions to specialists.

Credit Control, in particular, is a finance function that is commonly outsourced. One of the key reasons is that it can be both expensive and time-consuming to manage this in-house. Also, at times, the in-house staff might not be equipped with the right knowledge and resources to carry out this function efficiently and effectively, or may simply not have the bandwidth to do it justice.

However, the criticality of this function and the importance of managing client relationships often make businesses hesitant. If you’re thinking of outsourcing your credit control function to a specialist and need to learn more about it, we’ve got you covered. Here’s a list of the 10 most frequently asked questions about outsourcing credit control.

1) Why should I outsource my credit control functions?

Cash flow is a crucial factor behind the success of any business. However, businesses may end up focusing heavily on generating sales while not investing enough efforts into collecting the money from their clients or customers.

When you outsource your credit control function to a specialist, they will build a plan and a process to help you avoid bad debts, reduce aged debtors, prevent credit extensions to high risk customers, and achieve higher collection targets. A specialist can help you gain a more structured and consistent approach to outstanding debt management, while freeing up your accounting team from the burden.

It will also help you to reduce the number of accounts that require action like debt recovery and legal action.

2) What are the main benefits of outsourcing credit control?

Some of the key benefits that most businesses can expect from outsourced credit control are:

Better cash flow and reduced bad debts: Outsourcing can provide professional and reliable services to small enterprises and SMEs who don’t have a mature credit control department in place. For businesses with a mature process, they can support with digital transformation and process optimisation, while reducing the cost of operations.

A specialist partner can enable your business to keep a systematic and detailed record of clients, offer gentle due date reminders, provide swift query resolution, conduct polite but firm follow-ups for late payments, escalations, and dunning letters & statements. Overall, an experienced specialist will significantly reduce late payments and bad debts while improving your customer relationship.

Lowered operation costs: Manual processing of activities such as personnel, paper documents, databases, software, and more can quickly become expensive. A specialist partner can help streamline the entire credit control function while reducing costs.

Easy access to best technology, practices and processes: The right technology can enable your business to simplify and automate various tasks related to credit control. A specialist partner is experienced with the latest software and can help your businesses identify and implement the right technology, while also helping you set and stick to an optimised process for credit control.

Enhanced recordkeeping and documentation: Maintaining records and documents can get difficult for departments that do not have process rigour. For a service provider, it is a standard practice to maintain proper records of all communications and collections. This practice enables businesses to analyse the data and tease business insights. It would also help to successfully pursue legal action against customers, if required. Furthermore, documentation can aid in claiming a legitimate tax deduction on bad debt.

Improved customer relationships: A specialist partner usually employs staff who are trained in handling customer relations. Not only are staff equipped with best practices for customer relationship management, they are also trained in timely and effective customer query resolution.

 3) Which credit control activities can I outsource?

Some of the key credit control tasks that companies outsource include:

• Invoicing
• Post invoice verification
• Chasing via telephone, email or fax
• Follow-up for invoices and payments promised
• Dunning letters and statements
• Cash allocations
• Debt collection against previous aged debtors’ report
• Liaising with legal & compliance departments for legal action
• Credit control MIS reports
• Collection by age of the debtor
• Debtors’ ledger review

 4) When should I outsource my credit control function?

Some of the signs that indicate you should outsource your credit control include:

• Sending invoices late
• Not sending payment reminders
• Using outdated software
• Receiving late payments all the time
• Lack of standardised processes
• Inexperienced staff
• Absence of a dedicated credit control team
• Writing off bad debts frequently

For businesses facing the above issues, or for accounting departments missing on crucial credit control activities due to the lack of bandwidth, it makes sense to partner with a specialist service provider.

5) Should my business be a specific size in order to outsource the credit function?

Absolutely not! Any business, irrespective of its size, can benefit from outsourcing the credit control function. Most businesses tend to benefit from outsourcing as it is cost effective and offers significant expertise, which may not be available in-house. Furthermore, outsourcing enables a business to free up more time and focus on boosting its growth.

Having said that, some of the biggest benefits become available with scale – so processes with large volume of transactions are likely to derive bigger benefits from outsourcing.

6) Will I lose control of my business if I outsource my credit control activities?

No! You will always be in control of your business. A specialist partner will function according to the structure and rules laid out in your business contract. Furthermore, they will customise their services according to your needs. At the end of the day, whether the specialist will take care of the entire credit control function or just a few of its activities is entirely dependent on you. They will not have the final say in your business decisions or strategies.

7) Will outsourcing my credit control activities affect my customer relations?

An experienced specialist partner will have a customer-centric approach to payment collections. The key role of a specialist is to build trust with your customers and encourage them to make timely payments. They will also provide you with regular updates and reports on their activities to ensure you’re in the loop. Additionally, they will consult you before taking any action against disputed invoices and accounts that might be of concern.

8) What technology and software can I expect from a specialist partner?

An experienced specialist partner will have the capability to work with all major collection software systems. They are also up-to-date with the latest technologies and adapt to them within very short time frames. Some of the major software packages you should look out for include:

• SAP Business One
• Oracle E-Business Suite
• SAP Concur
• Kofax
• Docuware
• Access
• Microsoft Dynamics NAV

 9) Can I outsource specific tasks or do I need to outsource the entire credit control function?

It’s entirely your decision whether you wish to outsource the entire credit control function or certain key activities. Your credit control partner will work with you to provide a customised offering based on your requirements.

Additionally, the offshore credit control service providers will work closely with on-shore teams to complete tasks and deliver as per defined SLAs. Therefore, your business will be able to outsource specific credit control activities that might require a higher investment of time and resources.

10) What are some of the key factors I should keep in mind while looking out for in a specialist partner?

• Relevant experience
• Use of industry-standard tools and software
• Certifications/Accreditations of employees
• Transparent communication
• Flexibility and attention-to-detail
• Compliance with geography-specific standards like GDPR and SOC
• High data security standards that comply with standards like ISO 27001

11) How much experience should a credit control specialist have?

Look for a credit control outsourcing company who has a longstanding experience with finance & accounting processes. You should also vet the qualifications and accreditations of the staff. Choose Junior, Intermediate, or Experienced Credit Control staff, depending on your specific business needs. Customer references from previous clients can help you to decide whether the specialist is a match for your business.

12) Are there any data security measures that I need to put in place?

As you are sharing financial data like invoices, dunning letters and statements, and remittance receipts, it is important to have proper data security measures in place. Enforce standard procedures to share your financial information in a secure manner.

For the UK, a good credit control outsourcing company will ensure that they comply with ISO information security standards, the UK Data Protection Act, GDPR, and/or any other relevant standards. For the US, security standards such as SOC, ISO, EU-US Privacy Shield, and/or HIPPA and HITECH certifications can be considered.

Lastly, it’s critical that client data is stored in highly secure servers with limited access on a need-to-know basis. So, feel free to ask your provider about how they manage these details.

13) How much can I save by outsourcing my credit control function?

Cost saving is one of the key benefits of outsourcing this function. However, the figure will vary depending on the size of the organisation and the number of transactions and vendors it employs. Several businesses have saved costs ranging between 40-60%. Additionally, streamlining processes and improving efficiency adds to your overall savings.

14) What are some of the key factors I should consider while evaluating a potential outsourcing partner?

It’s critical that you conduct proper due diligence before onboarding an outsourcing specialist. Some of the key factors you should look into include:

• Business experience: Look into how long they have been in business
• Qualifications & Expertise: Does the team have accreditations, certifications, frequent upskilling?
• References: Get in touch with former clients and learn about their experiences with the specialist
• Financial stability: Review financial statements to know where they stand on outstanding commitments, liquidity, capital strength, and operating results
• Business model: Is there a conflict of interest? What is their revenue model? Do they offer flexibility?
• Internal controls: Are they up-to-date and compliant with legal and regulatory compliance requirements? Do they follow strict security measures? Are their employees trained on data security?

15) How can I ensure proper oversight over my outsourcing partner?

There are two things that you should keep in mind:

• Risk level: Higher risk services must be monitored entirely and frequently
• Changing conditions: Keep track of your monitoring activities

Setting up weekly and monthly reporting, along with monthly/quarterly governance calls with the top management can be a very effective practice. Additionally, it’s a good idea to compile and enforce a list of events that can trigger increased oversight and monitoring. Financial concerns, not meeting performance standards, and non-compliance must be at the top of your list of triggers.

At the end of the day, your business is responsible for the product or service that is outsourced. You should enforce relevant policies and procedures to effectively monitor the functioning and output of a specialist partner.

Want to Outsource Your Credit Control Function?

A reputed and reliable specialist partner can transform your credit control function. At QX Global Group, we use the right mix of process optimisation and technology to add value to our clients’ F&A processes. Get in touch with our experts for personalised advice on how to transform your credit control function.

Originally published Jul 19, 2021 09:07:16, updated Dec 08 2021

Topics: Credit Control Process