The attitudes credit pros hold towards outsourcing are largely influenced by whether or not they have been involved in any type of receivables outsourcing initiative. Although some organizations clearly have had bad experiences with outsourcing, many more are finding outsourcing to be an effective business tool. Despite the failures, those who have experience with outsourcing are more favorably inclined towards it as a group than the uninitiated.

There are several possible explanations for this phenomenon. One reason, to quote social scientist Phillip Maslow, is the fact that "familiarity breeds content." Because we tend to be much more skeptical of that which we have not experienced, outsourcing can be perceived as threatening, ill-conceived, or even faddish. On the other hand, when outsourcing is done properly, it works. As credit pros experience the benefits of effective outsourcing, they become proponents. By the same token, outsourcing proponents have a vested interest in demonstrating that the concept works.

The majority of credit practitioners have little or no field experience with outsourcing. We surveyed 109 credit executives, and not quite 3 out of 10 reported the use of outsourcing in their receivables operations.

By a nearly 2 to 1 margin, those involved in outsourcing believe it has proven to be beneficial to their organizations. This is buttressed by the fact that 58 percent of those already using outsourcing plan to implement additional credit and collection outsourcing initiatives in the next two years. Moreover, only 7 percent of this group plans to discontinue any credit and collection activities in which their organizations are currently engaged.

In contrast, only 13 percent of those not currently engaged in outsourcing have plans to implement any type of outsourcing solution within the next two years; 87 percent have no plans. Of those that do have plans, 80 percent indicated outsourcing remittance processing was on their agenda while 40 percent were looking at outsourcing collections. Other areas holding significant interest were dunning, credit evaluation, deductions, and UCC/lien handling, each cited by 20 percent of this group of respondents.

Similarly, those that are currently involved in outsourcing indicated plans to also add remittance processing (36 percent). However, dunning (29 percent) followed by billing and collections (both at 21 percent) were the other choices garnering significant interest.

Of those engaged in comprehensive outsourcing, there was a clear preference towards transactional related activities. The two most popular applications currently being outsourced in their entirety were UCC filing/lien processing (31 percent) and collection calls (27 percent).

The preferences, however, shifted considerably when outsourcing was employed on a partial basis. Collection calls moved to the top spot (44 percent) with credit evaluation coming in at 33 percent. Though transactional activities continued to predominate when we looked at partial outsourcing, there was considerable activity reported in regard to discretionary credit activities compared to none at all being reported by those engaged in comprehensive outsourcing initiatives. This, however, is not surprising, and is most likely related to control issues.

To better gauge the attitudes towards outsourcing held by credit executives, we asked a series of questions to which they could respond "always," "often,"

"seldom," or "never." (See the table below for a summary of the survey results.) The responses to these questions also exposed the dichotomy between those who are currently engaged in outsourcing and those who are not. Those using outsourcing were inclined to believe it was beneficial to their organization, delivered on its promise, increased productivity and reduced costs. Those who do not outsource believe outsourcing falls short in all these categories.

Where there was agreement between those that do and those that don't outsource, there was still a difference in degree. It was generally agreed that off-shoring is not as effective as domestic outsourcing. However, only 10 percent of those outsourcing, just 3 percent of the entire sample, are currently engaged in offshoring.

Because of the previously documented bias we observed on the domestic front, this raises the question: If more organizations were offshoring receivables management tasks, would there be more proponents? One can make a strong case that as more offshoring initiatives realize success, attitudes will change. At this juncture, however, it remains to be proven that offshoring can achieve general success, and, if so, what specific areas of receivables management will prove to be the most conducive to offshoring.

Another area of general agreement relates to the effect of outsourcing on customer relationships. Both groups clearly indicated outsourcing would be somewhat detrimental, though there were differences in terms of degree. Those considering any new outsourcing initiatives, and especially those looking at offshoring, are well-advised to consider the customer aspect of outsourcing.

A couple other potential pitfalls were shared by the survey participants. Communications in general and, more specifically, the ability to exchange intelligence is key to a successful outsourcing partnership.

Douglas Swafford, credit & collections manager, U.S. Express, Chattanooga, Tennessee, notes, "Previously we attempted outsource first party collections. Difficulties in communication and the inability for the agency to utilize our collections software inhibited progress and give us unsatisfactory results."

Outsourcing is enhanced when all relevant data is visible to both partners. Without that component, failure is more likely.

Several respondents also talked about the importance complexity plays in the outsourcing equation. Complex activities that require constant monitoring are difficult to successfully outsource. In contrast, outsourcing works best with relatively low-value, highly repetitive activities. When these parameters are met, the organization can then focus more attention and resources on its core competencies.

Outsourcing can also be highly useful when it is employed on a project or as needed basis. Linda M. Morish, senior manager, credit, Organon USA, Roseland, New Jersey, says, "I have utilized outsourcing on a project basis in order to deal with specific issues (cleaning up old deductions and credits). The results were great and were achieved with relatively low expenses. My permanent internal resources were freed up and could concentrate on current issues and get 'ahead of the curve'. I am also currently outsourcing some of my collection and deduction activity on a part-time basis. I am finding this to be cost productive, and the arrangement is flexible (I have been able to increase or decrease hours when needed). This is a lot easier than having to justify an addition to staff, especially when the additional resources are only needed on a part-time or temporary basis."

Conclusions
Outsourcing is clearly here to stay, as is its cousin, the shared services center. In terms of receivables management, outsourcing offers a wide range of alternatives that address the divergent needs of today's commercial enterprise. When outsourcing, as a well designed tactic, is fitted to address strategic needs, it appears to provide solid benefits.

In contrast, outsourcing the entire credit function runs up against a variety of challenges including customer service, process complexity, and intelligence sharing issues. Very simply, credit departments possess a wealth of knowledge that is not easily transferred to an outsourcing partner.

Understanding all this, credit executives that have no experience with outsourcing are well advised to learn what works and what doesn't. While you may have all the resources needed for a smooth- running credit function today, that may not be the case down the road. Lean organizations require innovative management, and innovation is stifled when ignorance and prejudice prevail. Outsourcing will undoubtedly not be the right fit for everybody in every situation, but it is growing in acceptance and is proving itself as a viable alternative for handling a wide range of credit and collection activities.