Should Your Business be Using a 1st Party to Help Accelerate Slightly Late Client Payments?

After reading Article #1 titled "Is Your Business Owed Money?" in my series of "Recover Your Business Profits" blog posts, your business SHOULD have concluded to use a third party which is a profit recovery company to free up those profits which are tied up in late past due accounts receivable.

Even if you are a business who has concluded that a 3rd party profit recovery company should be used as Article #1 recommends, you may not have considered using a 1st party cash flow accelerating company as well!

First, let’s get terminology straight:

• The 1st party is the creditor or business supplying the product or service.

•  The 2nd party is the debtor or client receiving the product or service.

• The 3rd party is a company who is not directly involved in the product or service transaction but which is a vendor supporting the 1st party to acquire money owed from the 2nd party.  Quite often a 3rd party is called a collection agency or a profit recovery company.

Now that terminology is clear, if the creditor is the 1st party then how can a 1st party be used to help accelerate slightly late client payments? Well the creditor can hire a company to politely represent them (outsource it) as if they are the creditor prior to going to a more firm 3rd party collections approach. Most creditors try to resolve late past due payments for months internally before finally turning the debtor accounts over to a 3rd party.

The good ones only work it internally for 2 to 3 months but unfortunately some work it longer. No matter what, virtually every business who offers credit spends a fair amount of time and effort working their late past due debtors with additional invoices or statements, letters, and phone calls. The Dartnell Institute, many years ago, showed that creditors on average spent $20 to $30 per late paying debtor trying to recover their money owed. Be assured, the internal collection cost today has risen well above this with estimates indicating that it costs $8 for each contact made to a debtor. So 5 contacts to get paid equates into $40 spent doing it! When the fully loaded cost is really analyzed by a financial person and the A/R department labor and benefit costs, mailing costs including paper and ink and postage, the phone costs, and associated overhead costs for things like floorspace and computer systems to support the A/R department is considered they will surely validate the total cost as being surprisingly high to do non-value-added internal collection work. Finally, this cost is incurred regardless of the actual recovery results obtained which can not be ignored.

Sometimes an outsourced 1st party is thought of as a billing company but in the context of this article we are not talking about simply sending open-loop the first invoice to a debtor who is not late per payment terms and waiting to receive payment. Instead we are talking about a closed-loop following up with debtors who are 1 day past payment terms to actively work getting payment. Do not confuse billers with cash flow accelerators. Best case, most billers simply send multiple statements but they do not write letters and make phone calls.

So to decide if your business should be hiring a 1st party cash flow accelerating company (not a biller) instead of doing internal collection work yourself, ask yourself these questions:

1) Do you struggle simply getting the first invoice out to non-late paying clients?

2) Do you get the second statements and letters sent out that you want to for late past due debtors?

3) Do you hate making collections calls and because of this find yourself never getting to them?

4) Do you not understand the legalities of asking to be paid without breaking the law?

5) Do you delay sending late past due debtors who are more than 90 days past terms to collections because you feel guilty you have not done proper followup in-house first?

6) Have you been thinking of hiring additional collection personnel even if just temporary or part-time?

7) Do you want to reduce the amount of clients sent to 3rd party collections?

If you answered yes to one or more of these questions then your business should consider hiring a 1st party cash flow accelerating company.

When doing so utilize cash flow accelerating companies that employ state-of-the-art dialer technologies to assist in getting through to the debtors since statistics show it takes 7 calls to typically get through to a debtor in person.

You will not only find out that it is much less expensive but that just taking calls to accept payment is much less frustrating than making calls in hopes of getting it.

Now that you know more about 1st parties, hopefully you can decide if using one makes sense to accelerate your business’ cash flow!

To inquire about how you can work with a cash flow accelerating company that has 40 years of experience and is now offering cutting-edge dialer technology as part of a 1st party service that was previously only offered to its very large Fortune 500 clients plus how you can do it with 5 contacts over 1 month for a flat @$10 fee per slightly late debtor account,

call us at:

818-710-0244

Series: "Recover Your Business Profits"
Article: #13 "Should Your Business be Using a 1st Party to Help Accelerate Slightly Late Client Payments?"