Receivables Management: Hidden Goldmine

Receivables management is no cakewalk. The opportunity is huge but needs careful tapping

Account Receivables Management services or collections, is one out sourcing opportunity that is in true growth mode in India, though its potential is far from being exploited by Indian companies. The good thing is that Indian companies have woken up to the opportunity and are taking the first few steps to tap the opportunity. After a few specialized companies, now broad-based BPO companies are trying to tap this area.

According to the Association of Credit and Collection Professionals, creditors placed a total of close to $135 billion delinquent consumer debt for collections in 2000, almost double the $73 billion of 1990. According to the Kaulkin Report on the US collections industry, there were more than 6,500 collection agencies in the US in 2000. It also notes that outsourcing is likely to grow at a whopping 25-35 percent annually. This is good news for India. According to the US Bureau of Labor Statistics, bill and account collectors held about 400,000 jobs in 2000, of which, about one in six worked for collection agencies. The bureau says that this number will grow by 35 percent by 2008. Today, Indian third-party companies together does not employ more than 3500 people.

For Indian BPO companies targeting this growth opportunity, the opportunities depend on their market-entry strategy. They could consider four models of client acquisition.

n Direct outsourcing contracts with the clients: This is the most direct model with a far better long-term growth prospects but also the toughest model to follow, because of direct competition with established collection agencies in the US. Moreover, you have to register as a collection agency in each state that you want to carry out collection activities in. Epicenter, EXL, Msource, and to some extent, Global Vantedge follow this model.

n Partnership with a US collection agency: This is a good model to get into the market. Global Vantedge (with OSI), HCL (with D&B Receivables), Zenta (with NCO), and Tracmail (with NCI) have followed this model.

n Partnership with debt-purchasers: This is one opportunity that is low volume but better on margins. Worldzen has already started on it in a small way. But not many have started.

n Getting into debt purchasing: A logical evolution of the earlier model, but it is too early for Indian companies to think about it.

Challenges
Receivable-management carries a few challenges that are distinct from other BPO opportunities.

Risk: Collection companies are often paid a percentage of the total collection—a higher risk game.

Need for registration: Unlike many other BPOs, the client acquisition in receivables management is not just about having a few sales people in one or two locations. For carrying out collections work in a state, most states require a company to register separately in the respective states—a huge task.

Building skills: Among BPO jobs, collections probably require the most skills among agents. The dos and don’ts of the US Fair Debt Collections Practices Act does not help much either.

Pricing: The success rates are often dependent on the stage of debt, target vertical and geographic areas, which vary vastly from each other. Indian companies should be able to learn them and reflect that on their pricing.

Studies by bpOrbit suggest third-party receivable-management companies could soon fit into one of the four categories listed below:

n Specialist Indian collection companies (Epicenter, Global Vantedge etc)

n F&A companies whose portfolio includes receivables management (EXL, Msource etc)

n Multi-service companies who act as the offshore center of the US collection agencies (Zenta, HCL, Tracmail)

n The US collection agencies’ own offshore delivery centers. A few are already in the pipeline.

Future Trends
The next 12-18 months will probably see one or more of the following.

n A beeline by US-based collection agencies to India, either directly or through partnerships

n A lot more late-stage collections coming to India

n A few Indian companies seriously looking beyond the agency partnership route, focusing on end-clients and debt purchasers to strike a balance between volume and value

n A lot more investments and acquisitions