Metrics For Job Security in Credit

This article originally appeared in Credit Today, the leading publication for the credit professional.
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In his book “Accounts Receivable Management Best Practices,” author John Salek, VP, Order to Cash for outsourcing giant Genpact, offers two important principles for what metrics you track and report to management.

  1. Report monthly and minimize the number of metrics routinely reported.
  2. Report on the basic dimensions of the receivable asset:
    – Risk. Age profile, risk profile by credit score, and bad debt expense.
    – Turnover. DSO actual versus best possible and cash collected.
    – Quality. Billing quality index, level of clutter.
    – Cost. Cost of accounts receivable management group as percent of revenue.
    – Service. Cycle time of disputes and credit application turnaround.

These are at once both complete and concise as a way to measure how both your receivables and your department are doing.

The first one of the five “basic dimensions of the receivable asset” above is something we see most credit managers report and often in great depth. The last four, not as much, but they are every bit as critical as the first one.

As we ponder these, we think the last two, in particular, are not just important for you and top management to track and work on. We are also certain they’re great metrics to track to ensure job security!

How do you stack up in all five of these?


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Boosting Credit Staff Effectiveness With Formal Performance Measurements

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!

“It’s essential for every member of our associate family first to understand the limitations of our resources and then to be able to show how and why their function is important to the organization and how we can contribute to its profitability and growth,” declares David J. Carere, CCE, CPA, CIA, director of credit risk management for Rich Products Corp. (Buffalo, N.Y.). “Formal performance measurements help us demonstrate this. For example, we can show the total number of dollars in the receivables portfolio and the benefits the organization gets from timely collection of those accounts.”

Benefits of formal performance measures for associates include:

  • Clearly established expectations.
  • Alignment in pursuing goals and directions that are important.
  • Creation of a stable environment and a sense of certainty for the associates. “They know what is important and why,” explains Carere.

In setting targets, Carere realized that he needed to take several factors into account:

  • Targets must be consistent with and support the overall departmental mission and objectives.
  • Targets must be limited to a small number of important ones. “If you create too many, you not only water down the importance of each, but it makes it very confusing and overwhelming for the associates to deal with so many,” he explains.
  • Targets must be achievable. “If targets are not achievable, it only sets associates up for failure,” notes Credit Manager Suzanne Gastle.
  • Targets must be set for both individuals and teams. “There are some measures that are good for individuals and some that are good for a team,” explains Carere. “When individuals are recognized and rewarded for excellent personal performance, and a sense of team is fostered, you get the best of both worlds.”

Associate Input

While Carere and the department managers could have created the performance measures in a vacuum, they elected to encourage and utilize associate input. “Associates need to know that the measures are fair and objective, and they need to understand why they are important,” notes Carere. “For example, they need to understand how much money the organization saves when they are able to reduce DSO by one day.”

Carere began discussing the performance measurement initiative at monthly departmental breakfast meetings. He also began soliciting associate feedback at these meetings. One result of this feedback was a decision not to set individual DSO goals as he had initially planned to do.

“They helped me see that there was a real lack of comparability with this approach, as well as some other potential problems,” he explains. Taking this feedback into account, Carere eventually changed the DSO component to a team goal. He also implemented a feature that measures DSO performance from year to year, taking extenuating circumstances into account.

Departmental Measures

In the Rich Products’ organizational structure, the credit and collection department handles credit extension and collection efforts, and the accounts receivable department applies payments, reconciles accounts on a daily basis, and initiates deduction resolution.

Measurements/targets for Credit and Collections are:

Team Goals:

  • Current year DSO compared to prior year DSO (adjusting computation for changes and new unusual factors, such as differences in the customer base).
  • Bad debt as a percentage of credit sales (comparing current year’s percentage to prior year).

Individual Goals:

  • Percentage of accounts assigned to a credit associate that have been properly followed up on.
  • Achievement of mutually established targets for slow-aging categories.

Measurements/targets for Accounts Receivable are:

Team Goal: Timely application of customer receipts by specific deadlines throughout the week.

Individual Goal: Accuracy of receipt applications, measured by monthly self-reporting errors.

Communication, Rewards and Recognition

Providing feedback to associates on a regular basis is important to the success of an initiative like this. “Associates see their progress on a monthly and quarterly basis,” explains Carere. He posts performance numbers each month, and when associates meet with their managers to review quarterly performance objectives they discuss performance measurements, too.

How are associates rewarded for improvements in performance? While many executives might arbitrarily create a blanket reward system, Carere realized that each person is unique and is motivated by different things. For this reason, he arranged for the department managers to meet with each associate and find out what they wanted (e.g., time off, gifts, cash, etc.).

Despite the challenges associated with this process, Carere continues to focus on what he considers to be the most important motivator of all–recognition. “It doesn’t put food on the table,” he admits, “but people really like to hear how much they are appreciated.”

People or Technology? Where will the improvements come from in the department? Carere believes that the associates have always been doing a good job. As such, he does not expect them to work a great deal harder.

Where he expects improvements to originate is with technology. “For example, we’re implementing a document management system in the cash receipts area to improve performance there,” he says.

On the surface, it may seem that expecting technology to make the improvements runs counter to a performance measurement system. After all, if it is technology that is making the improvements, why reward the associates? In addition, what motivation do the associates have to improve if the opportunity to improve is in the hands of technology?

Carere explains that, while technology is the basis for the improvement, associate involvement with the technology is critical to success. “We arrange for them to participate in the selection of the technology,” he says. “In addition, the performance measurement system provides the motivation for them to embrace the technology and utilize it to its fullest.”

While it’s too early to see any specific improvements as a result of the system, Gastle expects some benefits soon: “I think the measurement system will eliminate a lot of the subjectivity we’ve had to deal with in the past.”

This article originally appeared in Credit Today, the leading publication for the credit professional.
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Why A/R Analytics Matter, by Mark Wilson

In today’s business world, virtually every department in every company uses analytics to create efficiencies, make better decisions, and improve results. For example, a sales manager is no longer basing the sales team’s success solely on the number of sales made—that person is utilizing technology that looks at a number of metrics beyond those final sales. Why? For multiple reasons. Analytics can provide any business area with information that helps them stay competitive, streamline processes, hold their team accountable, and keep their customers satisfied.

Credit and collections teams should be utilizing this same type of technology to track metrics relating to their business area, however two obstacles often arise: (1) many credit professionals don’t know this technology even exists, and (2) those that do know it exists assume that implementation is an expensive and grueling process that requires a lot of IT support.

So, what if you had an easy way to go beyond DSO and track metrics that will transform your company’s A/R into a strategic and value-driven operation? Would you be interested? What metrics would matter? What if there was a free trial of a software that would let you do this so that you could decide if this was a valuable tool?

My company, TermSync, offers a cost-effective accounts receivable software, that is easy to integrate and use. By offering a program exclusive to CMA members, we’d like to make it even easier for you to track important AR metrics. CMA members can use TermSync for FREE until the end of 2015 if you sign up before September 30.

As a Preferred Partner with NACM National, the TermSync team has come to realize how innovative NACM members are and how much they really care about improving their credit and collection processes, especially those in the CMA chapter.

If you’re interested in learning more, join our free webinar on Thursday, September 10, at 9am PST surrounding The 6 Metrics You Should Be Tracking to Guarantee Success. Register here!

Mark Wilson, a former CFO, is the President of TermSync, a cloud-based accounts receivable software company owned by Esker, Inc. Mark will present this topic at his webinar on September 10. Register here.