This white paper discusses how outsourcing early stage receivables (those under 60 days past due) to the right partner can help mid-sized businesses improve their cash flow. It notes that collecting on accounts before they reach 60 days past due significantly increases the chances of payment. The paper outlines benefits of outsourcing like better collection results at lower cost, retaining customer relationships, and access to expert knowledge. It stresses the importance of carefully selecting a partner with receivables management as its core business that can provide customized solutions and meaningful reporting.

1. Transworld Systems White Paper
Early Stage Receivables Outsourcing
and the Mid-Sized Business
July 2010
Introduction

2. Transworld Systems White Paper – Early Stage Receivables Outsourcing and the Mid-Sized Business
Introduction
Mid-sized businesses are the backbone of our economy, but all too many of these
businesses falter due to lagging cash flow. A primary culprit is ineffective management of
accounts receivable—especially early stage receivables aged 60 days or less. Most
businesses don’t have the resources, technology or expertise to successfully implement
and manage an integrated early stage receivables strategy, making it difficult to stay
consistently cash flow positive. This paper explains how outsourcing early stage
receivables with the right provider can increase cash flow and allow businesses to keep
their resources focused on core business, all at a lower cost than comparable in-house
efforts. Criteria for selecting the right outsourcing partner—critical to successful
outsourcing—are also discussed.
Early and Effective Action is Key.
One of the biggest receivables mistakes mid-sized businesses make is delaying serious
action on an account until it is 60 or more days past due. While it seems logical to focus
efforts on the toughest, longest overdue accounts, it’s actually the early stage
delinquencies that are more likely to pay and pay in full. The likelihood of collecting on an
account decreases rapidly with age. The U.S. Department of Commerce reports that
nearly 30% of accounts at 90 days aging will not be paid.1 Applying strategic efforts to
secure payment before an account reaches 60 days is your best strategy for converting
receivables to cash. As advised on Inc.com, “If your terms are net 30, make your first call
on day 31...Cash momentum breaks down between 31 and 60 days.”2
Furthermore, addressing overdue accounts early on increases the likelihood of retaining
good long-term customers while training them to pay within your terms. Paul Legrady of
Kaulkin Ginsberg Company, a leading advisor to the accounts receivable management
industry, says, “First party collections [early stage collection activities performed by the
creditor or by an outside agency working in the creditor’s name] are more likely to enable
creditors to maintain constructive relationships with debtors who may become repeat
customers, as the collection activity can reinforce brand loyalty if handled correctly.”3
But timing is only part of the equation. Devising and implementing effective receivables
management strategy during the 0-60 day timeframe is just as critical. The basics of billing
and customer service must be well executed and collection strategy needs to be suited to
the company and customer. For example, reminder letters work for some accounts, but for
others courteous phone contact is far more effective, generating a greater sense of
urgency while allowing the customer to explain why a bill is not paid and to settle payment
immediately or make a commitment to pay by a specific date.
Effectively addressing accounts prior to 60 days can translate into a big boost to your cash
flow and your bottom line. Shortly after revamping the receivables process at Battery &
Tire Warehouse Inc., CEO Charles Bodenstab wrote in Inc. magazine, “The payoff for all
this effort has not been small potatoes. In my company, with $12 million in sales, the result
© 2010 Transworld Systems Inc. 2

3. Transworld Systems White Paper – Early Stage Receivables Outsourcing and the Mid-Sized Business
of getting receivables down from 60 to 40 days is roughly $700,000. This may not be the
most glamorous end of the business, but figures like that do quicken the pulse.”4
Bring in the Experts.
So how should mid-sized businesses best tackle those early stage receivables to recoup
the most revenue? Many companies handle all early stage billing and collection activity
internally, but with lean staffs and the need to focus on core business, their efforts are
typically ineffective. This reality has prompted more and more companies to outsource
early stage receivables (and sometimes the entire billing process) in order to realize the
greatest gains and refocus internal talent on core business priorities.
In most instances, outsourcing early stage receivables means your outsourcing partner
acts as an extension of your company, contacting customers in your name and operating
in line with your brand and philosophy, all the while applying best-in-class recovery
strategies, technology and processes.
Benefits of Outsourcing Early Stage Receivables
Significantly better results at a lower cost than in-house efforts
Shortly after implementing an outsourcing program, most companies quickly achieve
increased cash flow and lower operating costs. And savings continue over the long term
because fewer accounts need to be sent to third party collections. Paul Legrady of Kaulkin
Ginsberg Company writes, “first party collection efforts can be less expensive to a creditor
over time than other collection services, given the lower fees associated with first party
collections.”3 So not only do you collect more when you take action early, you spend less
doing so.
Retention of profitable customer relationships
Top tier outsourcing firms hold customer relationships and company image as top priority
and are experts at employing strategies that strike the perfect balance of getting customers
to pay while preserving the business relationship. Customers feel respected and can even
be more apt to give repeat business and referrals as a result of the professional, courteous
manner in which their delinquency was handled.
Access to leading accounts receivable technology, knowledge and processes
Even with significant investment, in-house departments can hardly compete with the
cutting-edge technology, receivables expertise and proven collection strategies available
to them when using an experienced outsourcing firm. A good firm will draw from best-in-
class processes and methodology to devise a custom strategy to meet a company’s
unique receivables challenges, and utilize state-of-the-art reporting systems to keep clients
updated and informed. Several outsourcing firms also offer billing and accounts receivable
office services as well as later stage collections, giving companies the option of
streamlining their receivables process through a turnkey solution.
© 2010 Transworld Systems Inc. 3

4. Transworld Systems White Paper – Early Stage Receivables Outsourcing and the Mid-Sized Business
Flexibility
Outsourcing programs can be quickly ramped up or ratcheted down according to need,
and strategic process changes are typically easier to implement through an outsource
partner than within an in-house collections department.
Greater assurance of legal compliance
Outsourcing firms are up-to-date on the latest legal standards, as their survival is
dependent upon operating within the complex laws governing credit and collections.
Freedom to focus on core business
The real benefit of outsourcing is that expertise is placed where it makes the most
business sense; the receivables experts are working on your receivables while you are
focused on what you do best: your business.
Finding the Right Outsourcing Partner.
The right partner is essential to the success of your outsourcing program, so choose
wisely. Invest the time and due diligence in finding the right partner and make sure they
not only execute your in-house efforts less expensively, but that they deliver significantly
better results and considerable cash flow improvement. Insist on the following criteria and
manage the partnership closely to ensure you’re getting the most from your investment.
Seven Things to Look for in an Outsourcing Partner/Provider
1. Receivables management as core business
2. Proven track record with evidence/references to support
3. Experience and familiarity with your market and industry (e.g., mid-sized retailers)
4. Custom solutions vs. limited out-of-the-box program options
5. Designated, accessible and engaged account team—including management level
6. Meaningful, real-time account management and reporting
7. Turnkey accounts receivable solution capability, including billing and other A/R
office functions as well as third party collections
Conclusion
For today’s mid-sized businesses, taking action on delinquent receivables in the 30-60 day
timeframe is critical to sustaining cash flow and staying profitable. Focusing efforts on
early stage receivables and outsourcing with the right provider can yield significant cost
savings and cash flow improvement while preserving valuable customer relationships.
Companies stand to benefit the most from outsourcing by partnering with an experienced
outsourcing firm who knows their market and industry, consults with them to develop
custom solutions and provides turnkey service.
© 2010 Transworld Systems Inc. 4

5. Transworld Systems White Paper – Early Stage Receivables Outsourcing and the Mid-Sized Business
About Transworld Systems Inc.
Transworld Systems Inc. ®, a wholly owned subsidiary of NCO Group, Inc.®, is an industry
leader in profit recovery with headquarters in Santa Rosa, CA, and more than 100 offices
throughout the United States and Puerto Rico. Transworld and its service brand
GreenFlagSM Profit Recovery are redefining the collection industry by providing businesses
and medical organizations with better tools for recovering bad debt and past due accounts.
Transworld has collected $2.4 billion over the past 5 years for more than 60,000 clients. In
addition, Transworld Systems specializes in the dental market throughout the United
States and has recovered $121 Million for over 10,000 dentists. For more information, call
1.888.446.4733 or visit www.transworldsystems.com.
SOURCES
1
U.S. Department of Commerce Study of Depreciation
2
Kimberly Stansell. “Tend to the Business of Collecting Your Money” Inc.com. March 2, 2000. Retrieved
June 23, 2010 from http://www.inc.com/articles/2000/03/17568.html
3
Paul Legrady, Kaulkin Ginsberg Company. "Creditors Exercising Options for Receivables Management"
InsideARM.com. April 23. 2007. Retrieved June 23, 2010 from http://www.insidearm.com/go/arm-
analysis/creditors-exercising-options-for-receivables-management?pg=1
4
Charles J. Bodenstab. “The Receivables Challenge: What to do if your customers are taking too long to pay
their bills” Inc.com. May 1, 1989. Retrieved June 23, 2010 from
http://www.inc.com/magazine/19890501/5655.html
© 2010 Transworld Systems Inc. 5