Receivables management and collector effectiveness: delivering bottom-line results through strategic performance management.(selected topic)

Effective receivables management is based on the synergies of three key components: people, processes and technology. While many companies have invested in new technology and adopted best practices, recent research from the Hackett Group has shown that performance at the collection desk has a direct impact on the bottom line. The 2008 Collector Level Effectiveness Study examined data around staffing, productivity and effectiveness and found a consistent gap between the performance of collectors at world-class businesses and the rest of the pack. Top-performing companies averaged 2.0 full-time employees (FTE) per billion dollars of revenue compared to 8.3 for the median, credit sales collected within terms were 88% versus 75% and collection contacts per FTE of 19,451 versus 3,943 (annualized). On the bottom line, costs per collection were $3.18 and $16.03 and DSOs were 32 versus 46.

It is clear that how you measure and develop your frontline collection team can have a direct impact on bottomline results. The key is to identify critical success factors from the top, then drill down to the desk level. This will help to ensure that goals are aligned throughout the organization towards achieving the same results.

Establishing Performance Metrics

There are a variety of metrics that can be used to measure organizational performance, so it is essential to identify quantifiable measurements that reflect the key areas of importance. Examples could be to improve working capital or focus on customer retention while still maintaining a clean aging. Key performance indicators (KPIs) can be used to measure the business health of the organization and ensure that each resource within the department is "marching in step" to the same goals and strategies.

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It is critical to balance KPIs between short-term and long-term goals as well as ensuring that both performance and behavioral metrics are reflected. For example, if an organization is driving for improvement of DSO while the focus at the desk level is cash collected, the results will be out of balance and in conflict with each other. Using this example, the collectors would be focused on collecting cash, ignoring aged disputed items or deductions, which would not help you to achieve the organizational goal of improved DSO.