CRF presentation stresses importance of measurements.(Credit Research Foundation)

Attendees of a presentation sponsored by the Credit Research Foundation (CRF) received a great deal of information about the value of performance measures including how they work, which ones work best and what a company stands to gain from effective measurement. CRF Vice President Lyle Wallis, CCE gave the presentation.

Wallis noted that there are some simple preliminary steps that some companies forget to take when implementing a performance measure. "You need to know what your company is trying to do," Wallis said, referring to an example where a company spent 30 man-hours per month measuring items that were of no consequence to the company's strategic mission. "Ask yourself 'what are we doing?' You need to know where the organization is going," Wallis said. "If a measure provides no benefit, why bother using it?"

Measurements should also be compared to a standard, otherwise the measurement loses its meaning. "Standards may be set according to past organizational or industry values or trends," Wallis said. "The best person to benchmark yourself against is yourself." Wallis outlined a number of popular performance metrics used in credit and collections including the CEI (Collection Effectiveness Index), the DSO (Days Sales Outstanding) and the ADD (Average Days Delinquent). Of the metrics used by credit professionals, the most widely used is the DSO. Wallis said, "It helps determine if a change in [accounts receivables] is due to a change in sales, or to another factor such as a change in selling terms."

However, Wallis noted that the DSO "is not an accurate or appropriate measure of credit and ...