Some processes can initially be outsourced onshore to trial, make improvements and stabilise them. Once they are refined and improved, the processes can be offshored to take advantage of a lower cost base.

For collections, which is best carried out in the evening and at weekends, North America can be the best location, taking advantage of the time difference and also established best practice in collections.

Also, in an increasingly uncertain world, it can be very useful to have several available sites in different regions. So, if one site goes down, work can move quickly to a different site, with minimal impact on the business.

In fact there are a number of cases where having a range of geographies is useful. So as a creditor, you may want to split your accounts, say, to work your VIP clients in the UK, to send your short-default cases to specialist negotiators in the US, and send your low-balance cases, which would not be cost-effective to collect in either the UK or US, to India.

A change in attitudes

Right-shoring is already an established strategy. The analyst firm Bain recently suggested that there were now 20,000 collectors servicing accounts overseas in India alone.

Traditionally, creditors have found it straightforward to outsource a large-scale operation like customer services or back-office work. However, when it comes to collections there has been an attitude that it is not worth shaving costs if that decreases the amount of pounds or dollars collected. Actually the recovery rates have been very strong, but such perception is powerful.

These attitudes are now starting to change, driven in part by the sub-prime mortgage crisis and its fallout for creditors around the world. Firstly, the crisis has caused the sheer number of delinquent accounts to balloon. Working delinquent accounts is simply a question of head count – have you got enough good people to do the job? A lot of onshore geographies simply do not have the capacity in terms of available labour to cover this and so it makes sense to look at parts of the world where such scalability exists.

Secondly, as a result of the crisis, recoverability rates are being reduced with the decrease in house equity. So the economics of the entire credit business will reduce; there will be more accounts marked as “not economic to collect” in the UK or US and creditors will naturally look to send them elsewhere.

Increased efficiencies

From the point of view of the outsourcing service provider, as more and more work is passed over, that allows ever more analytics to be carried out, which in turn allows for increased efficiencies. Models can be developed to better dictate which debts and which parts of the collections process can best be dealt within each region of the world, information that can in turn be used to advise creditors.

Amongst the first creditors to show an interest in rightshoring were the utilities and telecoms firms because they have a lot of small debts to collect so there is a much greater need for low-cost delivery. As an example, we are talking to one utility with a batch of £100 accounts which would never be profitable to trace and chase in the UK.

Today a lot of UK companies are considering rightshoring to the US, and some early movers have already started operations. Even two years ago, who would have thought this would be the situation? But it is happening because the combination of the weak price of the dollar, the available skills of local collectors and the ability to service UK peak collecting hours make huge financial sense. Who knows, maybe in future, the UK could become the rightshoring hub for Europe?

The keys to success in right-shoring are, firstly, an operational commitment to rightshoring, and secondly an understanding of the market. Then there are some subject matter expectations and a need for a psychological and cultural fit between the management There is always an underlying principle that the basics of collections are the same, wherever you work, it is just that the nuances have to be tailored to the local market. Right-shoring agencies can come up with very complex segmentation by district to understand which collectors are appropriate for which debt.

You have to look at all kinds of factors in the credit process - scalability, technology and competency of the local people. Sometimes it makes sense to work in or near to the local geography, at other times technology is important, or at other times, negotiating skills are crucial. That is the key to right-shoring; carrying out the right part of the credit process in the right location.

In all business life, fashion exerts a strong influence on senior management’s thinking - one day all dot.com businesses are good, the next they are bad.

Equally, offshoring was initially seen as the ‘next big thing’, but now right-shoring has overtaken it as a concept that places the right process in the right location, be that overseas or not.

It is exactly the kind of pragmatic and profitable approach that the credit industry is known for.

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