WHY OUTSOURCING B2B DEBTORS COLLECTION IS NOT EQUAL TO HIRING COLLECTION AGENCY
18 Jul 2022
Most companies face a problem of overdue debtors – they need a solution, but are hesitant to hire a specialized company that can assist them to collect the debtors faster: The hesitation of the management / sales team stems from the following facts:
- The outsourced partner will use heavy handed techniques to collect the debtors
- The customer will think that there account has been referred to 3rd party enforcers
- The customer will not do business with us any longer
- The sales team will become negligent in collecting
In reality, none of the above happens – as the Debtors Management Company has more to lose, if they use a heavy handed approach – only systemic and process oriented follow up assists to collect from the difficult, discontinued and delaying customers.
B2B Debtors Management Companies usually work with companies that believe that a “sale is a gift if money is not collected in time” and “the company should not be used as a bank by their debtors”.
1. How does a B2B Debtors Management Company Operate
B2B Debtors Management Companies are specialized companies – they follow a dedicated collections follow up processes – they are assertive in their approach and maintain detailed records of their communications with their customers.
Their process based approach, allows them to independently judge their customers “Intent to Pay” OR “Ability to Pay”, further the focus is to reduce debtors build up and rolling over debtors in the higher ageing buckets.
The Debtors Management Companies, depending on the nature of the debtor design a collection strategy and devote resources to collect the overdue debtors on a timely basis. This also includes rigorous follow-up for collections. Identifying disputes and then following up with the client companies to resolve the customer issues, so that the money get collected quickly.
Further, since the debtor management company is paid a success fee, they are motivated to collect, as quickly as possible and make a good impression with the client and the customer.
By concentrating resources and attention on a limited task, the cash collections progress is accelerated and debtors ageing is improved.
2. Why Outsource B2B Overdue Debtor Collection
Outsourcing debt collection companies is suitable for all those businesses that have overdue debtors > 60 days overdue – as this stage the credit period extended to the customers + grace period of 60 days has already passed, if the customer has not paid in this period, it means that there is an unresolved issue due to which the customer is not paying OR the customer has a financial problem – both serious concerns for the company.
3. Who should “Outsource the B2B Overdue Debtor Collections”
Collections from “Government, Direct Corporates and the trade channel” are a challenge across all organizations. Collection targets are often missed and “Overdue Debtors keep growing.”
Customers use payment delaying tactics and the sales teams don’t have the time to manage bureaucracy and follow up for business. Sales & Collections both suffer.
In the following cases, the companies will reap benefits of outsourcing the collections to a B2B Debtors Management Company:
- For companies with a large and wide spread customer base - as the sales teams have limited time to cover collection and sales effectively
- Collections From BFSI and Government Customers - due to the complicated invoice approval and payment processes
- For Project Businesses Companies – RA bills, LD’s and retention amounts and project team movement
- From Discontinued dealers / distributors – they have “no intent to pay” – as they have moved their business and relationships elsewhere
- Invoices for AMC’s, After Market Spares and Services – low value and high number of invoices, makes follow up difficul
- EMD’s and Retention Money – the project team moves onto the next assignment and there is no one to follow up
4. Benefits of “Outsourcing the Overdue Debtor Collections”
Following are the benefits of outsourcing the debtor’s management:
- Specialization: Outsourcing companies have specialized teams that are highly trained in customer management and debt collections management
- Increased Collections Performance: With the highly focused and trained professionals, outsourcing company helps in increasing performance that helps in reducing DSO and get paid sooner by customers and that results in improving cash flow
- More Control over Processes: Outsourcing to a B2B Debtors Management Company is more reliable and independent in many ways, the company controls the process for collections and identifies and closes the issues much faster than the internal teams.
5. Why GGA as your partner for “Overdue Debtor Collections”
- We will increase the overdue debtors payout to the organization
| Despite a higher rate - GGA has higher collections and therefore a higher net cash returned to business | ||||
| Sales Team | Internal Collections Team | Another Agency | GGA | |
| Fee Charged on Collections - blended | No fee | 5% | 15% | |
| Cost of Collections - Internal | 10% | 20% | No fee | |
| Overdue amount to be collected | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 |
| % of overdue collected | 10% | 25% | 15% | 40% |
| Amount Recovered | 5,000,000 | 12,500,000 | 7,500,000 | 20,000,000 |
| Fee / Cost of Collections | 500,000 | 2,500,000 | 375,000 | 3,000,000 |
| Net cash returned to business | 4,500,000 | 10,000,000 | 7,125,000 | 17,000,000 |
- Time is Money
The older debtor gets:
- The cost of collections increases
- The effort to collect increased
- The collectable amount decreases over Time
- Improved Debtors Position
- Process Improvements
A reversal of provisions and collections of debtors involves deep analytics and defined strategies to be integrated into the DNA of the organization and measured on a month on month basis. It is often not possible for an organization’s internal resources to devote time to these activities.
GGA’s assists organizations debtors collections initiative to be successful by involving themselves – both at the analytics stage and then at the operations stage.
- Reducing the Provision for Debtors Collection and Not letting the debtors pile up
GGA prioritizes collections of older dues from the customers. We do not allow the debtors to pile up OR further addition to the Provision of Doubtful Debtors.
- Business focus on core activities
Letting GGA manage your overdue debtors will enable the CFO and the sales team to focus on your core business activities, instead of trying to managing the non-core activity of debt collection efforts.
- Efficiency of collections
GGA with its core focus and domain knowledge will collect the overdue debtors quickly and, in a time, effective manner.
- Advice on Collections and “Non-Collectability”
Either GGA collects the money or advises clients on their customers “Intent to Pay” OR “Ability to Pay”
- Head Count Issues
GGA has a Pan India, highly trained team that can be deployed immediately.
- Reach and Bandwidth
GGA has a team of team strength of 200 + internal resources and has a presence, Pan India. We have the domain knowledge, processes and skills to collect across customers.
- Pre Litigation and Out of Court Settlements
GGA makes an effort to ensure that our clients do not have to resort to the court of law to recover the overdue debtors.
- Skip Tracing
GGA uses skip tracing customers to locate customers who are not answering emails/Calls. We have the ability to trace directors of the companies etc.
6. About GGA
GGA India Private Limited (GGA) is a focused “Business to Business” Account Receivables Management (“ARM”) Service Provider. GGA concentrates exclusively on designing, developing and implementing customized B2B debtor collections solutions for its clients.
Founded in 2002, GGA works with B2B organizations to collect from both concurrent and legacy debtors.
For any information or clarification, please contact
Gaurav Gupta – CEO
Chartered Accountant
+ 91 98111 63422