Metrics Matter

If you don’t measure it, you can’t improve it.

That’s an old adage, one that is certainly true for our ever-changing profession. But have your measurements kept up with the changes in your role, or the challenges faced by your business?

Sure, we all track the normal measurements having to do with DSO, percent current or past due and bad debt expense. Some of us go further with Best Possible DSO, Average Days Delinquent, and the Collections Effectiveness Index. These are all long-established ways to evaluate our performance, and they’re fine.

The problem is, they only go so far.

As our role as business credit executives has expanded to include more ownership of the "order-to-cash" process, the things we measure need to expand. It only makes sense that the metrics we use not just keep pace with that expanding role, but actually stay ahead of it. And in many cases, these "future measures" are becoming more operational in nature, reflecting our broader organizational involvement.

Here are some examples based on identified trends that are impacting our profession. Consider that while all of them may not apply to you just yet, they might in your next role.

Credit Card Processing
The trend: More credit card use is coming, so become the expert now.
Most business credit executives report an increase in the number of customers desiring to pay by credit card, often due to corporate accounts payable directives. Being a business credit executive today means becoming your company’s internal expert in credit card processing, chargebacks, and anti-fraud measures. How much more in credit card business did you do this year vs. last? Has your chargeback volume increased? Own this area—and the relationship with your card processing service. Don’t take credit cards? Get with the program! Drive the change to adopt this important payment method.

Systemic vs. Manual Processing
The trend: Lead a never-ending drive to eliminate manual exceptions.
We as a profession continue to review and revise processes and procedures, often driven by new system implementations or SOX compliance requirements. As we peel back the onion of legacy procedures, it’s a great opportunity to eliminate non-value-added work.

Is your team buried in manual tasks? A simple way to start is by measuring how many of your transactions (invoices, credit memos, checks applied) are created manually vs. how many are done automatically. Are you still processing credit memos and cash application by hand? If 75 percent of your cash is still manually applied, it’s a real red flag to get cracking and identify/implement whatever technology works for your business. There are plenty of vendors at NACM’s many conferences who are waiting to help. Two words: auto-cash.

Cycle Times Matter
The trend: Measure and drive improvement in any cycle times that touch you, including orders and returns.
How long does it take you to approve a new or existing customer order? If you’re not reporting out an order-to-approval cycle time yet, start today! If nothing else, you can flaunt how efficient you already are or the improvements you’ll make if you aren’t.

A related area is customer credit application processing. If it takes days or weeks, that’s not so good. Today’s credit scoring opportunities can get your turnaround time for most new customer applications in minutes, if not seconds, and for a lower cost than having your clerk check individual credit references. Get’er done!

Maybe your company does lots of credit memos, returns or customer refunds. Measure how long it takes for them to be issued/processed, and create opportunities for improvement.

Why are you holding up orders?
The Trend: Don’t be the bad guy—fix the root cause!
Do you frequently have a backlog of orders pending release from credit hold? Don’t just measure the dollar amount; take it further to consider the source of the order. Are most coming from one division or location or sales rep? Can you report on the proportion of orders on hold because of delinquency, over credit limit, or other reasons? If you can, you can use this information to drive constructive change to improve the underlying reason for the backlog, be it technological, a lack of headcount, or desperately needed training for your favorite field sales group in Walla Walla.

"Hey, Mr. Chairman, I’m already doing all that and more."
The Trend: The bigger the firm, the greater the opportunities for measurement.
OK, so maybe you’re with a larger, more sophisticated firm. You have a large call center, or you’ve used credit scoring for a number of years. There’s something here for you, too.

For call centers, are you calculating not just past due roll rates and calls completed/dropped, but call reasons and drivers by root cause? How about call volume by business unit or product line, to get at where most of your inbound transactions are coming from?

And since you’ve already scored your full portfolio of customer accounts, have you calculated the average days to pay for each major score category to better predict overall portfolio performance? How about by division? By product? And are you using your scoring data to its fullest—not just to set bad debt reserves reserves and drive collections based on score, but to review the receivables of potential acquisitions? Does your scoring methodology play a key role in your documented SOX compliance?

Big firm or small, there’s always room for improved metrics that help drive improvements in your broader organization. And it just might help you during that next performance evaluation, too.
Source: Mark A. Tuniewicz, CCE, NACM Chairman

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