Accrual-based accounting has its pros and cons, especially when it comes to accounts receivable management. While it’s nice to have revenue on the books, it’s not tangible until the money hits your account. Unfortunately, there’s always a chance it won’t show up. That’s the purpose of credit and collection teams: to track down delinquent balances and recoup owed amounts. The trick to getting what you’re owed is to provide these teams with the resources they need to capture the revenue and keep it from becoming bad debt.
Obstacles facing internal collection teams
Internal collection teams are frequently short-staffed and lacking resources for various reasons, typically because they’re often not a high-priority or highly visible department. It’s why collection teams normally have a skeleton crew and, ultimately, why accounts get overlooked, resulting in loss of income.
When collection teams are properly staffed and equipped with the necessary resources, they’re better able to effectively contact and negotiate with customers behind on their payments. This can lead to a higher rate of successful collections and a lower rate of bad debt.
“If you’re not touching these accounts on a regular basis — or often enough — some of them are going to go past due, and you’re going to end up outsourcing collection services anyway,” says Sven Nelson, CMO at The Guy That Gets You Paid. “You’ve only got so much manpower, and they can only do so much in a day.”
How to get upper management onboard
Selling upper management on the teams’ needs can be challenging. “It’s not so much about the cost of adding another individual onto their team,” Nelson says. “It’s about how to show this cost isn’t really a cost; it’s an investment in the company in the form of a resource. Provide data showing current metrics and the benefits of adding staff.”
Here are a few tips for selling upper management on the concept of resource allocation for internal collection teams:
- Provide data on the current rate of successful collections and bad debt, and show opportunities for improvement.
- Highlight the potential risks and costs of not providing proper support. No one wants lost revenue!
- Emphasize the long-term benefits of proper support, rather than just focusing on short-term gains.
- Be prepared to answer any questions and address decision-makers’ concerns.
Ultimately, the key to selling upper management on the concept of resource allocation for internal collection teams is to demonstrate the value proper support can bring to the organization and show how it aligns with the company’s broader goals and objectives.
“Make a plan for yourself first and go over the bullet points you want to discuss with whoever the decision-maker is,” Nelson suggests. “From there, it should definitely be a conversation you have in person, and then follow up with an email so it’s documented.”
How to identify collection gaps and improve performance
Closing the gaps in collections involves analyzing the current performance of the collections team and identifying areas where improvements can be made. Identify and assess your collection gaps using these four steps:
- Review performance data. Examine the data and see where things can improve.
- Conduct a gap analysis. Identify areas where the team is falling short and determine what changes need to be made.
- Evaluate the current process. Identify any bottlenecks, inefficiencies, or areas where the process can be streamlined.
- Seek feedback. Collect feedback from collectors, customers, and management to identify pain points.
Once you’ve identified your collection gaps, use this information to land on specific “asks” to address the identified issues. This often involves selling management on support personnel. If hiring people isn’t feasible, outsourcing to a third-party collector may be an efficient solution.
“When you don’t have the resources internally to hire enough staff, outsourcing can be a great option for handling disputes and other issues because the third party isn’t emotionally involved,” Nelson remarks. “Sometimes that means a larger settlement amount. Other times it means a faster settlement. Plus, you’re not paying salaries or benefits, and there might even be an opportunity to deduct these services as a business expense.”
Managing debt and increasing revenue with collection resources
The bottom line is, an investment in credit department resources equates to a reduction in bad debt — and an increase in realized revenue for the business. While it might be an uphill battle to convince your boss to allocate more support to the collections team, showing them the return on investment and the path to get there is the first and best step toward getting the support you need to do your job more effectively.
[cta]Bad debt happens. When it happens to you, reach out to The Guy That Gets You Paid at [email protected] or call 866-341-6316.[/cta]
