New Horizons for Commercial Collectors
The emergence of dot.com companies is creating new revenue streams for commercial collections agencies, as other outsourcing and highly specialized services continue to be hot trends in business collections.
By Elayne Robertson Demby
It’s the invasion of the dot.com companies, and commercial collections executives are welcoming the onslaught. The reason: The proliferation of dot.com businesses is generating commercial accounts that need collections servicesproviding a welcome, new source of revenue. In fact, as the landscape for traditional third-party business collections shifts toward more specialized services, dot.coms are becoming the newest outsourcing clients for commercial agencies savvy enough to spot and land their business.
Keeping up with the times, many commercial agencies are providing customer relationship management services and beefing up their knowledge about specific industries they serveor hope to serve. And increasingly, business collectors are expanding globally, offering their services internationally. Other agencies are honing their competitive edge in managing accounts for small- to medium-sized companies or working debt at an earlier stage of delinquency.
But clearly outsourcing, coupled with the explosive growth of the dot.coms, is providing commercial agency executives with significant opportunities for growth. “Outsourcing continues to accelerate,” says Forrest R. Old, vice president of marketing at Dun & Bradstreet Receivable Management Services in Murray Hill, N.J. “Our own operation grew 50% last year and continues to move forward aggressively,” he says.
Others agree. The biggest trend, says David I. Herer, president of ABC Companies Inc., “is the recognition by clients that the traditional collections agency servicerecovering third-party debtis no longer the most important service these agencies can provide.” The Buffalo, N.Y.-based agency is experiencing a shift toward working outsourced accounts for its clients. “Outsourcing is becoming more critical than traditional debt collections,” Herer says.
A number of factors are driving businesses to outsource their accounts. “The more sophisticated businesses who hire us, want to stick to their core competencies and almost always that is not handling receivables,” says James Bohmann, group president, commercial services, at St. Louis-based Outsourcing Solutions Inc. The strong economy also is forcing many companies to outsource because of the shortage of personnel trained in collecting accounts. Often, new companies do not have anybody on staff to make follow up calls 10 or 15 days after the bill is due, says Michael Puckett, president of United Mercantile Agencies in Louisville, Ky. Businesses, particularly new companies, are also wondering if it is necessary to create or maintain collections offices when other companies are already geared to perform those functions. Executives realize they can invest resources in other areas that will create more revenue.
Dot.com companies, for instance, are increasingly seeking the services of collections agencies to handle their back office work. The rationale for these online businesses is to provide products and services to make it easier for companies to interact with each othernot do collections. “They want to stick to what they are uniquely qualified to do,” Herer says. Growing Pains
Since dot.coms are growing so rapidly, they do not have the opportunity or the disposition to take on the collections function themselves. “The dot.com companies don’t set up collections operations to start with, [preferring to] farm out receivables from the beginning,” says Emil Hartleb, executive director of the Commercial Collection Agency Association in Cedar Grove, N.J. The companies are so new that they lack the long-standing collections infrastructure and experienced collections personnel. Therefore, many dot.com executives find it more cost-effective and efficient to simply outsource their past-due accounts.
Beyond simply outsourcing accounts, some businesses are seeking total customer relationship management services from commercial agencies. “Clients are looking for something more than just making calls after 60 days,” says Lou Molettiere, executive vice president and chief operating officer, NCO Group, Fort Washington, Pa.
In the past, companies were concerned about a third party talking to their current clients. But these days more collectors are trained in handling business debtors while maintaining good customer relations for their clients. “Now clients are comfortable that we can do a better job at decreasing days sales outstanding, while preserving a quality customer relationship so that customers come back,” OSI’s Bohmann says.
“The client is looking for good recovery, a good rate, and quality service,” says Carl Perry, vice president of marketing and government relations at ACS Aman Collection Service Inc., Aberdeen, S.D. In this approach to working commercial debts, agencies that are more sensitive in dealing with the debtors can gain a leg up on the competition. If a collections firm, for instance, “works a portfolio so that the customers are complaining to the client, then that creates more work for the client, and the whole point of outsourcing is to reduce the client’s stress,” Perry says. That client is likely to seek another agency to handle the work.
In outsourcing their accounts receivable, more firms are looking for collections agencies that specialize in their line of business. A client in the transportation industry, for example, expects collectors handling their accounts to know what a bill of lading is and how to deal with it. By the same token, a client in the insurance business expects collectors to know what audits of workman’s compensation claims are. “You have to be able to pick up the phone and talk to the clients about their business,” Bohmann says.
And business, of course, isn’t just local. Many large multinational companies are looking for one-stop shopping, which includes managing and collecting business accounts around the world. These companies want to coordinate collections throughout their operations, including their units overseas. “We do business in 29 countries,” D&B;’s Old says, “and have alliances with third parties in almost 200 countries.”
And as more American companies sell on an open-account basis, there is a growing need for commercial collections in the international arena. Historically, American businesses did not sell to companies in other countries on credit. They would expect a letter of credit to be in place before engaging in international trade. Now, as international trade on credit is accelerating, delinquencies are too, Puckett says. That means collections firms serving those clients must have an excellent network of collections experts worldwide, or they need to set up their own operations in other countries.
Another growth area for business collectors is servicing small- and mid-sized companies. The strong economy has led to an explosion in the growth of these types of businesses, which may have only six to 10 claims a month. But, to a small-business executive, five unpaid claims can represent 50% of his firm’s net worth, Bohmann points out. So in dealing with these clients, a more responsive customer service department is needed. OSI recently set up a new division specifically to handle these types of accounts.
Many companies that do not outsource their entire receivables operations are placing accounts at an earlier stage of delinquency. “The emphasis is on getting money in sooner,” Molettiere says. But businesses are moving away from a straight black-and-white approach to viewing their accounts. “It’s not just a matter of when an account reaches 60 days, then standard procedures are run,” he says. For example, if a customer has a long-standing client that consistently pays 10 to 15 days late, that client will not be singled out for collections. But if a new client quickly runs up a bill, then that company may get a friendly telephone call. “I have one client,” Molettiere says, “who every night does a review of all accounts receivable to flag high risks.”
If dot.com companies continue their incursion into the business world, and predictions about the potential for business-to-business e-commerce prove correct, technologically savvy commercial agencies should enjoy a continual flow of work from the new revenue stream. After all, the Internet is already changing the way business is being conducted. And ABC Companies’ Herer predicts, “the development of electronic payment and presentment will be a real issue affecting collections agencies in the future.”