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Outsourcing Collections and Accounts Receivable?

Category : outsourcing

One of the main themes espoused in the The 4-Hour Workweek is the idea that you should outsource all tasks that you can and automate all the rest, leaving your time mostly focused on strategy, business-growth, and handling escalated tasks that exceed the capabilities of the outsourcers. All this sounds great, and Tim Ferriss makes lots of recommendations in his book on outsourcing a wide range of activities. However, one of the things he doesn’t mention much about is the activity of collecting money from customers.

If you’re doing things right with a muse (or even bigger) business, collections should not even be an issue. You’re probably already charging upfront for your products,using credit cards, or check prior to receipt of goods, and so you shouldn’t even have an accounts receivable problem. This is another argument behind the point that the 4HWW ideas and lifestyle is primarily suited to product-based businesses that sell products up to $500 (items that can easily be charged to a credit card). I presented other arguments to back up the point that the 4HWW lifestyle and outsourcing concepts are not really appropriate for service-based businesses at all, or product-based businesses that have long sales cycles, expensive price-points, in-person delivery or sales, or proposal generation. Basically, the 4HWW ideas are really meant for payment-upfront, product-based businesses that require no in-person sales, delivery, or proposal generation and where the decision-making cycle is very short. This really leaves a lot of businesses outside of the 4HWW ideal.

For those in the services industries or in businesses where it is impossible to receive full payment for goods prior to delivery, then the ugly problem of collecting accounts receivables rears its ugly head. Collections takes time. Generating invoices. Collecting checks. Following up with delinquent accounts. Finance charges / service fees. Working with large company’s accounts payable systems and procurement people. None of this is fun nor conducive to the 4HWW goals. If you can’t change your business to bring it in line with the sweet spot defined above, then what can you do? Outsource the whole collections and accounts receivable mess.

I have not yet done any research in this area, but I can imagine that there must be a place where you can send your monthly or weekly or even daily accounts receivables to some outsourced firm who goes through all the trouble of making sure the payments are received. I would imagine they’d take a percentage cut of the collections to do so, however, but save you the headache of managing such a time-suck of an activity. For large-ticket items ($50k an above maybe), this might be a good idea. But for those in the not-so-sweet spot of 4HWW (products over $5,000), but not quite $50k, this might prove to be problematic.

Does anyone have any experience with this type of accounts receivables outsourcing and have any advice? Do you think I have it wrong with regards to the 4HWW sweet spot and characterization of the 4HWW ideals as primarily focused on cash-upfront (point-of-sale) products that are bought (not sold!) between $50 and $500?

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Comments (1)

You ask a very powerful question regarding the outsourcing of your AR & collections. There are many factors to consider when considering the management of this vital business function.
At what cost is this beneficial: Time saved, cost to expedite, return or outstanding AR, proper management, handling of your customers, etc.
There are many vendors that can expedite such matters, but few to actually do it correctly, and in the fashion you may expect.
This kind of service is best done with a vendor with whom you can expect a long term partnership. They must have the resources, experience & willingness to develop a program that is tailored to fit your specific needs. If they are to be a seamless extension of your business, they must understand your business & the principle, by which you built your business,

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