The average consumer debt as of Q2 2023 is $23,317 (excluding mortgages). Up 4.7% from the previous Quarter, this gives us great insight into the state of consumer debt in the U.S.
If businesses experiencing late payments plan on making collections, they need to have a clear plan for managing their account receivable.
The problem is many financial institutions struggle to find the right vendors. They manage 50+ partners in complex networks, yet still struggle to achieve reliable collections.
Much of this comes down to a handful of simple factors which most vendors do not deliver on.
In this article, we explore those factors and explain exactly what your organization should demand from any quality vendor.
4 Things Every Accounts Receivable Management Vendor Should Offer
Transparency
Why transparency matters
Visibility and insight into your accounts should be a non-negotiable part of any outsourced AR management service. Yet one survey found that 47% of businesses cite “lack of transparency” as a major problem in AR management.
As a result, many organizations find it hard to manage and forecast their AR revenue – which makes setting and hitting KPIs more difficult. Recoveries teams do not have insight into the status of individual accounts, which means they are forced to simply trust that the vendor is doing everything it can to maximize collections.
What you should demand
Accounts receivable management vendors should not only provide information on your accounts’ status; they should make it easy and intuitive to gain detailed insight into those accounts.
You should ask any prospective AR vendor what processes and tools they have in place to ensure information is accessible to their clients. Ideally, you should expect easy-to-use dashboards that provide near real-time data – and can be accessed anywhere.
Compliance
Why compliance matters
Regulatory reporting and compliance risk management are major parts of any organization’s debt collection processes. But handing over your accounts receivable to a third party requires total confidence that they will meet all your compliance requirements – which is not always a given.
This is particularly important when it comes to innovative technology. Artificial Intelligence (AI) and machine learning (ML) enable faster, more effective decision-making when it comes to managing and collecting debt. But given the perceived “black box” nature of most AI solutions, many organizations fear adopting them will create compliance problems.
What you should demand
Any accounts receivable management vendor should be fully compliant with all industry specific regulation, such as the Fair Debt Collection Practices Act (FDCPA), as well as the numerous data protection laws enacted at both the federal and state levels. However, this is a bare minimum requirement. You should demand more: any reliable vendor will have processes in place that actively help you become more secure and robust from a compliance perspective.
When vendors meet this demand, there are a range of benefits. Audits are simpler, the risk of non-compliance is lower and regulatory reporting can be done with greater ease.
Flexibility
Why flexibility matters
The nature of your debt collection strategy will inevitably change as your business evolves. You may require more servicing as you scale; you may simply change the kinds of debt you take on, which requires a new approach to collections.
This creates a problem for many vendors. They have built their services around a specific model and will try to fit your portfolios around their existing processes – which will make collections less efficient.
What you should demand
Expect your accounts receivable management vendors to be as agile as you are. They should be able to adapt to changing regulations, forms and debt and service requirements – whatever you need to produce optimal collections.
The best way to test for flexibility is through the breadth of a vendor’s offering. If they can connect you with a large recovery network, and provide multiple products or tools, there is a good chance they have the kind of resources and business philosophy that will help you grow – rather than holding you back.
Innovation
Why innovation matters
Technology has the power to transform debt collection for the better. At RDS, we have found that AI can produce liquidation rates 2-3x higher than traditional processes.
However, most accounts receivable management vendors still rely on legacy processes and don’t look at each account as an individual account. This creates two key problems: first, you are not gaining an accurate enough picture of each consumer’s financial health; and second, you are not benefiting from innovation – and missing the possibility of far more efficient collections.
What you should demand
The best accounts receivable management vendors help you stay ahead of the curve. They should help you introduce more accurate, reliable data into your processes – and leverage innovative tools like AI and ML to enhance your collection strategy.
This is the best reason to outsource accounts receivable management: to access tools and techniques that are otherwise outside of your team’s expertise.
Stay Ahead of the Curve with RDS
At RDS, we are dedicated to changing our clients’ expectations of accounts receivable management vendors. From increased transparency and built-in compliance to a suite of innovative AI tools that enable you to pinpoint the most profitable accounts to pursue, we provide a comprehensive service that means you can drop the complex vendor network – and trust a single partner to help you hit your toughest KPIs.
