Outsourced Servicing-A Valued Future Strategy?

posted by David Pohlman on Tuesday, May 03, 2011

If a rising tide lifts all boats, then it’s safe to say recent economic waves have erased some inefficiencies in our industry and elevated the quality of goods and services delivered in portfolio servicing. Unprecedented economic challenges have pushed organizations to rethink their practices ranging from credit policies and repossessions to asset management and billing capabilities. In short, economic upheavals have imposed greater specialization when it comes to the delivery of services.

The Case for Outsourcing Portfolio Management

Portfolio management is a key strategic initiative to running a successful organization. Recognizing the complexity of execution and the increasingly granular nature of portfolio management, many lessors employ consultants or interim personnel to identify new funding options, review processes and evaluate their own internal systems. Another option may be to focus on current resources and their individual efficiency levels. Placing operational staff within a stack ranking system and being prepared to make difficult decisions is a situation many equipment finance companies are facing.

The notion of in-house servicing as a requirement to be a true lessor has come and gone. Lessors seeking to outsource a particular function or possibly their entire front and back-office platforms are discovering third party specialists in credit administration, documentation, on-boarding, collateral management, customer service, collections/workout, accounting, cash management and tax administration services. These specialists add value in the areas of cost savings, service levels and predictable costs for budgeting. Managing cost has become a priority as lessors grapple with erratic quarterly expenses associated with their internal portfolio servicing. Outsourced servicing essentially transitions two expenses into one. Lessors managing their own portfolios bear the cost of a servicing system and an operations staff. Expenses can be eliminated down to a simple monthly servicing fee paid to a third party that is managing the back office while the lessor benefits from controlled and enhanced service levels.

The Staffing Issue

In a world where expertise is getting more specialized, it pays to locate a provider who can leverage their knowledge to your advantage and have qualified individuals execute with minimal fail rates. When faced with staffing decisions, many lessors are hard pressed to find a reliable recruitment base to fill positions at lower salaries. There has never been a better time to have qualified and well-trained people managing a portfolio and servicing customers. Outsourced servicing has the opportunity to bring excellent skill sets to a portfolio in an indirect approach while still maintaining adequate metrics. Not only do lessors retain the benefit of immediate, qualified human capital, but they also skip the time and expense of hiring and training.

Who Controls the Customer?

Many lessors believe if they outsource their servicing platform, they relinquish control of their customer base. Frequent and customized reporting cycles help maintain valuable contact. Outsourcing can actually help finance companies retain customers. By focusing less time on administering a portfolio, lessors can direct more attention to business development and provide superior service levels during the origination process.

Back office service levels improve as well. When electing to outsource portfolio management, a lessor doesn’t transfer the back-office responsibilities to a single desk but rather a team of trained servicing professionals, each with expertise in their own niche. Team members have support staff and colleagues to cover for them while they are out of the office or on a call. Instead of relying on two or three staff members to fulfill six or seven functions, the lessor has access to a team with a full complement of specialized functions.

Best Practices as Part of a Continuum

Best practices are another key benefit to an outsourced service provider. A lessor choosing to outsource not only has access to valuable human capital, but they engage an entity experienced in different processes used to fund and manage an equipment lease portfolio. Service providers have first-hand experience on best practices since they are continuously evaluating best-in-class strategies to sustain superior portfolio performance. Leveraging this experience and using up-to-date procedures can add value to any portfolio.

The Silver Lining

This economic cycle has presented challenges to all organizations and has forced many generalists to evaluate what they do best and reconsider their level of value contribution to the markets they serve. Outsourced servicing platforms are gaining ground at an accelerating pace since the expense risk is much easier to manage. Nonetheless, it is important to remember that customers are still the foundation of these portfolios, and they all deserve quality treatment and respect. However, when you select the right provider, you can insure the best of customer treatment and portfolio expense management–thus raising the tide of success in your business.

About The Author

David Pohlman is executive vice president and COO of GreatAmerica Financial Corp. and a member of the GreatAmerica Office of the President, which makes strategic, financial and operational decisions that set the direction of the company. In his role as COO, he is responsible for the sales, market ... read more

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