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Topics: Accounts Receivable Management

You might have heard the terms “first-party” and “third-party” accounts receivables tossed around in business circles. You may or may not be somewhat familiar with these terms. In any case, you’re wondering exactly what the difference between the two of them is, if any at all. 

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There's a difference, and a fairly major one at that.

Not the Usual

If you search “first-party accounts receivables” and “third-party accounts receivables” on Google, most of the results you’ll come up with are the usual in-house/outsourced divide. It’s one you’re likely familiar with. 

Yet there seems to be another layer here—especially since some accounts receivable management providers suggest they offer both first-party and third-party services. How can they offer both services if “first-party” means tasks are managed in-house? 

The answer’s simple: “First-party” and “third-party” mean something somewhat different when it comes to accounts receivable services. It has less to do with who’s completing the process, and more to do with the stage of the process.

First-Party Accounts Receivables

First-party services happen early on in accounts receivable management. During this stage, you may want to send out reminders to customers about their overdue payments. You might also offer to enroll them in your program for debt repayment. 

At this stage, any partner provider you engage for first-party services will act on your behalf, using your company name and working to uphold your relationship with your clients. Reminder messages will be branded with your name, and they’ll adhere to your strict standards for communications.

Third-Party Accounts Receivables

Third-party services happen later in the debt collection process. Most often, you’ll engage a partner to provide third-party services on old debts, especially those that have gone cold. In these cases, the customers seem to have skipped town; they don’t answer your calls, your emails bounce back, and paper reminders are mailed back to you. 

Once the account has moved to third-party accounts receivables services, your name will no longer be used. This is what most people think of when they hear about collections: a third party calling to recover the debt, without any seeming attachment to the company where the debt was originally incurred. 

This allows your partner provider to work without fear of damaging your brand or your relationship with the customer. 

Since this step comes after first-party accounts receivables, when reminders and payment programs have failed, your partner needs some leeway to employ different tactics, such as skip-tracing and other services.

Which Do You Need?

In all likelihood, most businesses will need to employ both first-party and third-party accounts receivable services at some point. While you hope most of your customers pay on time, there’s little doubt some of them will need at least a gentle reminder once in a while. Others may need more reminders or even a repayment program. All of this can be handled with first-party services.

Unfortunate as it may seem, the reality is any business will probably end up with a few accounts they need to employ third-party accounts receivables in order to collect. The longer you’re in business, the more likely it is you’ll encounter these customers.

Who Do You Partner With?

You may now be wondering what to do: Do you employ two separate providers for service at the two different stages, or should you partner with one provider the whole way through?

Generally speaking, teaming up with one provider offering services at both stages is a better plan. Why? The provider can monitor accounts from the early stages of collections through to the later stages when third-party services are needed. They can judge when to move the accounts, and they can also seamlessly integrate both services to provide a comprehensive, customized program for your collections.

How-to-Save-Customer-Relationships-by-Outsourcing-Accounts-Receivable-Management

Jason Henning

Jason Henning

Jason is the senior vice president of Bill Gosling Outsourcing’s offshore location in the Philippines. He began this role in 2012 and was an integral part of the company’s development. Jason has over 10 years of experience in international operations; he managed all aspects of operations, profitability, and business development for Convergys’ offshore accounts receivable management. He’s also an avid golf player and a Delta Million Miler traveler.

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