Collective Behavior | Article

Outsourcing Saves MoneyBelieve it or not, before the launch of Windows 95, the ledgers of Microsoft’s European entity, based in Ireland, looked “dreadful.” Mark Creighton, EMEA Credit and Collections Manager for Microsoft European Operations Centre, says the company decided to bring someone on board to “clean it up” before the launch of the new Windows product. French & Associates knocked on the door at just that time and was given the task. Their fee was based on a percentage of what they managed to collect, and Creighton (who was at that time part of the French team) recalls that it was “far more successful than we ever had imagined.”

That success led Microsoft to outsource its European-Middle East-Africa (EMEA) collections functions on a full-time basis to French in early 1996. Although Microsoft originally had not been looking to outsource when the French salespeople went cold calling, Creighton says there was an immediate rapport with the Microsoft credit manager. When the decision to outsource was made, French & Associates was selected not only because of its prior collection success but also because “they gave us the respect of being Microsoft and not just another customer.”

The credit management team that French & Associates provides to Microsoft now includes cash collectors, cash applicators and credit and risk analysts. They also provide project coordinators and managers to assist Microsoft in new business developments. The French team is responsible for collecting Microsoft revenue and correctly applying those funds on a 24-hour turnaround. They also analyze the risk that is open to Microsoft by dealing with its channel partners. It’s a responsibility that can’t be approached lightly, as they are responsible for collecting $5 – $6 billion a year.

Happiness is a Shrinking AR

Most of the employees performing collection functions in-house at Microsoft moved to other positions in customer service and distribution when the French team moved in. The original credit manager left, and Creighton transferred to Microsoft as the new credit manager. Approximately 25 French & Associates people are now onsite at Microsoft, and the remaining five team members are offsite. Creighton says the French employees wear badges of a different color but, otherwise, are integrated into the Microsoft world. “They are part and parcel of our business.” They are also high profile in the customer phase of Microsoft’s business.

The value that the French team provides in this outsourcing arrangement goes beyond their collection skills. “They bring us a people diversity that is very important. They brought in people with language skills that we would not have gotten ourselves. Greek and Hebrew are not easy to find in Ireland!” The EMEA centre in Ireland distributes both hardware and software licensed products for customers stretching from Iceland, Pakistan, Russia, S Africa and everywhere in between.

He says the supplier’s hiring turnaround rate is also much better than what Microsoft could achieve. “They can fill a position in three weeks, and that is remarkable in Ireland’s economic times right now.” French has also provided people in other areas, such as cash management and treasury management, and in project management for the credit control area – all areas that Creighton says Microsoft would not have considered looking at as part of the original deal.

At the top of the value list is an entry for AR (accounts receivable). “If you look at our AR five years ago, we were around 60%-70% current a month. Now we average 96% current on a monthly basis. When you put in 96% of your revenue on a monthly basis, you’re pretty happy,” comments Creighton. Additionally, considering the fact that Microsoft’s terms vary between 30-90 days, the French crew is actually collecting invoices earlier than “on time” in many cases.

Summing Up

Microsoft manages the supplier through the service level agreements. Metrics are centered on things like percentage current, cash applied in time, projects completed on time. There are also metrics for hiring new people. Besides a turnaround time of 2-3 weeks, Microsoft requires a certain quality of the language to be spoken. Each employee is tested (at the supplier’s expense) on a college level standard for each language they speak.

They chat informally every couple of weeks and are instituting official monthly meetings with the French & Associates account manager. Because the team is expanding, Creighton seeks to hire someone to manage the French employees onsite, and French also will provide an onsite administrator.

Their relationship and objectives have evolved quickly with successes achieved. The primary objective is still to protect Microsoft assets (timely collections, reducing overdues and long-term debt and bad debts); but the French team is now working with Microsoft to make sure that new business models take off correctly. Although Microsoft’s EMEA center does not currently deal with end-user customers, they are headed in that direction in some areas. The company is now beginning to leverage the French experience and knowledge of dealing with the “man on the street.”

French & Associate’s technological tool (AR Collect) has been such a huge success in their efforts that Microsoft has been reviewing whether to roll it out worldwide to all of the people responsible for Microsoft collection functions.

Creighton says they plan to sign a yearly contract when the current one expires, but that “there is no fear of French & Associates losing the relationship. Generally they kind of fit in to Microsoft’s long-term goals and help us reduce our risk.”

Lessons from the Outsourcing Primer:

  • A good standard to adopt for professionalism in CSR or collection reps who deal with the buyer’s customers is a requirement of a college level in language usage.
  • Three effective metrics for collection activities are: percentage current, cash applied in time, projects completed on time.
  • In an outsourced collection process, it is helpful for the supplier to work with the buyer whenever the buyer wants to establish new business models. That will ensure the new model is set up to correctly facilitate future collections.


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