Case Study: 4th Party Collections
The New Paradigm for Collecting Receivables
The Background Challenge
Late payment costs money. Never receiving payment for aged invoices costs even more money. Statistically, accounts receivable which age over sixty days past terms are a great concern because they severely affect a company’s bottom line in two ways:
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1) Accounts that age carry a cost, i.e. time value of money;
2) The longer an account ages the greater likelihood that it will never be collected, i.e. risk.
The U.S. subsidiary of one of the world’s largest steamship container lines was having trouble collecting the receivables in its northeastern region of the United States which was historically one of their most problematic regions for collecting.
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Even though the shipping line client employs an in-house collection department devoted to collecting outstanding receivables, when we were called on to assist in improving accounts receivable in the northeast region, the subject client had an over 60-day AR percentage of 18%. In other words, 18% of their accounts receivable had aged beyond the statistical “point of concern.” They wanted to reduce the number of accounts which were aging over 60 days past due. Bottom line, the shipping line wanted to collect more and faster while not damaging customer relations.
The Solution
The shipping line outsourced its entire northeast receivable operation and daily management to Metro Group’s 4th Party Collection program. Our solution has three parts: our people, our processes, and our technology.
Our People
Our Technology
Our experts are better. Our employees are generally composed of three types of people: lawyers, former steamship line industry employees and driven, financial professionals. We regularly immerse all of our staff in transportation collection training sessions.
These sessions include port/terminal/rail head visits, in-house lectures by senior staff mentors, round table sessions, and client document study. Furthermore, unlike our client, our collectors are incentivized to achieve successful results. Our success is usually equated with the collection of money and/or the retention of our clients’ customers. Metro Group sees itself as the last step in closing a deal or the saviors of a relationship; the collector shares financially in that “deal.”
Our proprietary collection database and credit bureau is the most uniform, efficient, technologically user-friendly environment for 1st and 3rd party transportation collectors. Our database already houses an enormous quantity of data related to maritime, logistics, and trucking companies and their best contacts, decision makers, and the history and outcome of many thousands of transactions. This serves as an internal credit bureau allowing our user the greatest depth of foreknowledge about many transportation companies and companies/individuals that use transportation, creating great efficiencies in due diligence, research and in determining the proper strategy for any scenario.
Our Processes
1st Party Collections –
Replacing the shipping line’s in house Collectors
A great work ethic translates to an extremely high number of outbound customer contacts. We pick up the phone a lot. We make many more phone calls/customer contacts. Due to longer hours and our no-nonsense approach to collections, our collectors average 80 customer contacts per day.
It is not uncommon to see over 100 calls in any given day at our call centers. We are also open or business seven days a week. It is basic probability: the more customers contacted for payment, the more payments expected.
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We place accounts into 3rd party collections at an earlier age. We find that in most cases, regularly delinquent customers are less chronic debtors and more so good customers that just need to be reconditioned to pay within their terms.
3rd Party Collections –
The Collection Agency
We are cognizant of the relationship between the customer and our client. In many instances, we are placing invoices into 3rd party for customers who continue to have an ongoing relationship with the client. In such an instance, our approach would be firm while collegial and customer service oriented.
We have attorneys in-house. They guide and work closely with the non-attorney transportation collectors. For the more stubborn debts, having attorney intervention earlier in the process has been extremely effective.
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While we will make every reasonable effort to resolve an open claim without litigation, if the customer is unwilling to resolve the matter amicably, we would then determine the viability of a lawsuit and make our recommendations thereafter.
4th Party Collections – The New Paradigm
The synthesis of 1st and 3rd party collections is the game changer in reducing DSO and over 60 day old accounts. A 4th Party collection department can escalate accounts more nimbly — and there is no economic cost to the shipping line for escalation. Early escalation reconditions the customers into paying timely and in full.
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Also, there are great efficiencies created in having 1st and 3rd party collections combined under one roof. It proves most advantageous when an account is transferred from 1st to 3rd party because all of the information about the delinquent account is located in the same database. This is extremely useful in developing the most advantageous 3rd party collection strategies.
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Many of our 1st party collectors were once 3rd party collectors and, therefore, the 1st party unit knows exactly what information to provide when transferring the file to the 3rd party unit and can do so immediately. Additionally, there is a significant amount of time saved when obtaining supporting documentation.
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When supporting documentation is required to effectuate collection, it can take anywhere from 2 to 14 days to acquire that documentation from our clients. However, a particular benefit of 4th Party Collections is that there is virtually no turnaround time in retrieving required additional information or documents from the 1st Party in-house collection team, because we are the 1st Party team! So inherently, any account under one roof in the hands of 4th Party Collections could have its DSO decreased by days when supporting documentation is required.
The Impact
In a little over a year, Metro Group reduced the client shipping line’s over 60 day past terms, on books AR to under 2% and we maintained that percentage.