Servicing contracts can create bottlenecks in any organization, which can eat up valuable time for generating revenue. Jena Morgan shares the lessons KLC Financial learned when the company decided to outsource servicing activities. She outlines the benefits, the downsides and tips to prepare for the transition. 

We are currently in a growth market. Rates are low, spending is high and companies are generating record revenues. Equipment financing is no different. We all tend to prosper when the economy is doing well.

While KLC has been achieving record numbers, we had concerns about the scalability of our business model. Once we audited various aspects of the business, it became shockingly clear that we were spending too much time, money and energy servicing our own contracts. Tirelessly calling on clients to collect payments, coordinating end-of-term transfers and updating paperwork was the consistent bottleneck in our operation.

If we could remove the bottleneck and focus our efforts on revenue generating initiatives, we hoped our business would grow bigger and faster than ever before. We faced a decision: purchase custom built software that will grow with us and hire more staff or outsource our servicing needs.

Ultimately, we chose to outsource, and while our partnership is still relatively new, we have already started reaping the benefits. As with any major shift, we ran into a few roadblocks along the way. This article describes some lessons learned during our transition.

When weighing the pros and cons of outsourcing your servicing, there are several positives to consider.

The Positives

1. Focus on Revenue Generating Projects

Servicing is a time-consuming process, which involves members of every department. Whether calling on collections, shoring up insurance documents, updating payment date changes, managing hardship collections, processing addendums or getting documents signed, all of these seemingly small tasks compound over time when hundreds of accounts are involved. Hiring a professional servicing company to handle all of these aspects will allow your team to focus solely on growth initiatives like prospecting new deals, deepening existing client relationships and creating more engaging marketing content, which will generate more revenue.

2. Enhanced Offerings to Vendor & Dealer Partners

Due to the labor-intense nature of pulling payments, most companies will only allow payments to be scheduled on a few days per month. With a third party, payments can be scheduled any day of the month, which adds more convenience to clients. Flexible payment schedules are becoming a benchmark, so while this might not bring in new business, it may be one less reason to go elsewhere.

Since lease payments are taxable, you must be registered to collect sales tax in any state where you lease equipment. This can be a roadblock for many companies, but a servicing partner will do all the work once you have filed. They are very efficient and will handle remitting and tax filing, which will save you time and money.

3. Guaranteed Compliance

Most servicing vendors maintain AICPA rules of controls, so you can rest easy knowing that any of the transactions or touch points that funnel through your partner will be compliant and properly documented. This is also valuable in a company audit. Your service provider should be able to pull any contracts in question and provide detailed interactions to answer the auditor’s questions. If the auditor discovers an infraction in contract serving, the servicing partner will assume that liability.

4. Reduced Overhead Costs

Running a business is expensive, and without diligent expense management, you can find yourself in a challenging place. Employees are often one of the biggest expenses for a small business. While we appreciate everything our employees bring to our company, offering salaries, wealth and health benefits, bonuses and raises can be a strain while trying to scale a business.

Outsourcing can reduce operating expenses. This decision should not be taken lightly. Saying goodbye to our entire service department was the toughest decision we had to make in our 35 years. Our servicing team was best in class, and they did fantastic work. However, in the end, letting them go was best for the long-term growth potential and financial viability of the business.

The Negatives

1. Giving up Control

Control is a precious commodity in any business, especially a small one. Knowing valuable interactions are happening with your customers without your office’s involvement can be hard. You must trust that your partner has the best interest of your company and customers in mind at all times.

2. Time & Focus

The migration process will be a trying time, which will require countless hours, back-to-back meetings and a mountain of initiatives that grow so big you may question whether it is worth the effort. Change is tough, and it may seem easier to stick with your familiar business methods. But if you do decide to invest your time and focus, it will free up your workforce.

Things to Consider

1. Build or Outsource Software & Systems

If your business has been fortunate enough to grow beyond a boutique shop, out of the box software probably cannot meet your more complex needs. If you are amending processes and creating work arounds to get things moving through the pipeline, the time has come to consider new software. You must decide whether to build a custom solution or to outsource that side of the business to a company with a robust system in place.

Investing in custom software is great because it is individualized specifically for your company’s nuances. But it is often very expensive to build and maintain. Custom software requires IT support, a web designer and a storage solution for your data, which comes at a premium price point. For these reasons, a pre-existing subscription model software option that can be implanted into your business may be a better option. The product is already built to meet your needs, and small customizations are generally included in the contract. The benefits of this route are speed, costs, scale and compliance.

Having an already built out product is exponentially faster to implement. Building custom software can take anywhere from eight months to a year, and the process is extremely time taxing. Pre-built software can be onboarded in weeks to a few months depending on your current file system’s level of organization.

The vendor will already have a development and support staff in place which saves on overhead costs. In our experience, any issues or disruptions will be handled with urgency and care.

Are you equipped and ready to maintain bank-level security and compliance? A data breach may be the biggest threat to businesses in today’s world. Most companies don’t consider themselves a target until it is too late. With a service provider, the onus is on them to maintain security and compliance measures.

Preparing for Onboarding

So you’ve decided that outsourcing is the right move for your company and found a vendor partner. What’s next? The following steps will prepare you for on-boarding.

1. Organize Your Data

Go through each document, contract (both historical and still in-service), associated insurance paperwork and documented processes to migrate to the new system.
The more organized everything is, the easier and quicker your onboarding process will be.

2. Explain Everything

Be ready to fully explain your business, processes and your unique needs. If the new system does not already have the capabilities you need, new features may be built, which will take time. It’s best to identify those needs before you are live and realize something is missing.

3. Hire a Migration Contractor

Consider hiring an outside contractor with experience in data conversions or be prepared for this to be a staff member’s full-time job for three to four months. The onboarding process is time consuming, and there is no way around it. Regardless of how organized and prepared you are, expect a fair amount of back and forth with the vendor. Having a dedicated person to manage the migration and act as a liaison for after the transition will help ensure a smooth transition.

You are still running a business, and your customers still need assistance, so taking someone away from the current day-to-day operation can be costly. An experienced migration contractor will likely be more efficient, better suited to predict an error or concern and less disruptive to the current needs of the business.

4. Test, Test & Test Again

At every step of the migration process, request a trial run (or multiple runs) to ensure your team understands what the outcome should look like and what the next steps will be as a result. The more thorough the testing phase, the more prepared you will be for the launch, which will increase the odds that you will have a seamless transition for your clients.

Giving up control of any aspect of your business can be difficult, especially when your business is built around nurturing relationships. Servicing in our world can be emotional, and it can make a deciding factor in whether you have repeat business, so the decision to outsource should not be taken lightly.

Take time to reflect on your immediate and long-term goals. Identify your areas of strength as well as the aspects of your business that may be weak or holding you back from larger goals. If this process leads you to the conclusion that someone else may be better suited to take on those roadblocks for you, make the decision and start the conversation about partnering with them. If you plan, prepare and dedicate yourself to the process, and are open with your customers, you may find that your business grows, your employees are more engaged and your customers are better served.