5 Credit Control Outsourcing Red Flags that Should be Address for Effective Credit Management

As businesses aim to streamline their financial processes, credit control outsourcing has become an increasingly popular strategy. Many organisations are turning to seasoned service providers to enhance operational efficiency and optimise their cash flow management. However, the decision to outsource credit control comes with inherent complexities and potential challenges. Credit control plays a massive role in ensuring a healthy cash flow and impacts business revenue and profitability; therefore, you cannot take its functioning for granted. Companies have ended up bankrupt because of credit management challenges. If you don’t want your company to end up in a worst-case scenario, you must manage your credit control outsourcing well. 

Companies must be vigilant and aware of red flags that could impact the success of such an arrangement. This blog aims to identify and address key red flags to watch out for when considering credit control outsourcing, providing valuable insights for making informed decisions and navigating potential obstacles. 

Red Flags of Outsourcing Credit Management Services 

Let’s take a look at some of the credit control red flags that demand a rework of your working relationship with the outsourcing partner: 

1. Surface-Level Profile Analysis
   

   One of the critical components of credit control management services is the ability to drill down on a customer’s financial health and market credibility to ensure your company is extending good credit terms to the right customer. Suppose your outsourcing partner is not conducting extensive due diligence. In that case, you will encounter red flags like incomplete customer information in the reports or ambiguity in answering questions regarding the feasibility of working with prospective customers. If this happens regularly, you have a problem on your hands.

2. Miscommunication

   Your instructions to the credit-control outsourcing provider must be followed to the last letter. If you want specific rules and regulations to be followed while implementing a credit policy, you don’t want the provider to take a wrong turn. Also, if the outsourced credit control department finds it difficult to enforce specific core policies, these challenges must be communicated clearly. More importantly, you must receive updates regularly to help you stay on top of the process. Any miscommunication or irregular updates can create problems. Take, for example, the case of an invoice that the provider processed inaccurately; the client information was wrong, and it couldn’t be sent out on time.  But this wasn’t conveyed to you. No prizes for guessing this can have cash flow repercussions.

3. Creeping Inefficiencies
   

   Imagine a scenario wherein things are going well. Against the run of play, the provider misses a deadline or cannot process the predetermined number of monthly invoices. Or you encounter specific errors in reporting. While this can be a one-off, these are red flags for inefficiencies and can indicate that the credit control services provider cannot manage your credit control process optimally. There can be many reasons, including the provider’s inability to manage the workload or project complexities. After identifying the red flags, your job is to convey this to the provider, look for solutions, or look for a new outsourcing partner.

4. Lack of Transparency

   It’s all hunky dory when you are talking to the sales executives, but between the operations and the sales, there is many a slip twixt cup and lip. This is why identifying and giving importance to red flags is necessary. Sales have promised extremely transparent costing that covers every aspect of credit control. However, let’s say you ask them for post-invoice verification, and the provider says that will cost extra. This is a red flag as this is evidence of ambiguous costing. Or, the provider has promised X amount of credit control MIS reports but reduces the number at the delivery time, again saying that will demand extra work hours and, therefore, extra cost. This can increase the outsourcing budget, making the whole process less cost-efficient than you thought.

5. The Tech Problem

   Before starting to work on your project, the provider promised that their accountants were well-versed in the tech stack you were using, but you find that some or all accountants are having problems optimising the use of the accounting tech stack. By ignoring this as a teething problem, you are putting the credit control management process at risk. One of the ways you can prevent this problem from happening at a later date is by getting a comprehensive look inside their technology profile and asking for a few ‘project hours’ that help you check whether the provider’s accountants are comfortable with the accounting platform you are using. 

Some other red flags you must keep an eye out for are minor errors that your outsourced accountants keep making or the fact that they keep asking the same questions after you have resolved similar queries in the past. These are tell-tale signs that you have signed up with the wrong credit control outsourcing provider. 

Getting Credit Control Right 

It is important to partner with a credit control outsourcing provider who understands the significance of this process and delivers value to it to help improve its efficiency. 

QX is a leading finance and accounting outsourcing provider for the UK, and its outsourced credit control services ensure that clients are paid promptly courtesy of a strong and sustainable credit control framework. They benefit from process excellence supported by credit control best practices, backed by the experience and expertise of talented credit control professionals. 

Contact QX to know why you no longer should worry about credit control red flags. 

FREQUENTLY ASKED QUESTIONS: 

Why is Credit Control Important for Your Business? 

Credit control helps you protect your investments in the accounts receivable ledger. It ensures you can extend the correct credit terms to the right customers and maximise returns from your customers. Credit control focuses on mitigating finance risk, ensuring your business is paid on time, and safeguarding sustainable and appropriate cash flow. 

What is an Example of Credit Control? 

An example of credit control is when a business sets and enforces credit policies to manage the extension of credit to customers. This includes assessing the creditworthiness of potential customers, setting credit limits, monitoring and collecting overdue payments, and establishing procedures for handling late payments and defaults. 

How do You Implement Credit Control? 

The foundation of exemplary credit control implementation is clearly expressing customer payment terms and conditions and answering any customer doubts regarding payment terms.  It is also driven by the ability to comprehensively check the customer’s financial health and align this information with the appropriate payment terms. Other critical activities on the implementation checklist include faster and more accurate invoice processing, payment follow-ups, and creating an environment that fosters a healthy and long-term customer relationship that delivers value for your company and the customer. 

What are the Top 3 skills for a Credit Controller? 

Any reputed controller needs domain knowledge, which includes deep-seated financial knowledge and credit management skill sets. More importantly, the credit controller should have hands-on experience and expertise in creating, implementing, and enforcing credit policies, keeping in mind the company’s operational domain. Other vital qualities that separate suitable credit controllers from the best are attention to detail, impressive research capabilities, and planning and organisational skills.  

How Do You Become an Effective Credit Controller? 

Credit control efficacy results from how well you can manage this process. Efficient management depends on the skill sets of credit control personnel and how fast you can build capacity to meet your company’s growing credit management needs. Companies decide to partner with a credit control outsourcing firm to build capability quickly, negate the impact of talent shortage, and benefit from labour arbitrage.

Originally published Nov 24, 2023 06:11:55, updated Jan 29 2024

Topics: Credit Control Process, Finance & Accounting Outsourcing