Topic: Credit / Working Capital Management
Subject: Successful Techniques Used
Submitted on 09-01-10 11:12 am
Message:
In response to Bob Shultz’s challenge to share our experiences, I offer the following…
Over the past two years, I’ve concentrated on providing more defined information to management. Many companies use large buckets to capture their past due aging detail: 1-30, 31-60, 61-90, and so on. I initiated programming changes (with the help of my friends in IT) to report much smaller buckets: 1-7, 8-14, 15-30, 31-60 and then 30 day intervals through 180. By doing so, I was able to tell the story of how our portfolio was performing – to a very granular level – which highlighted our efforts to pull customer payments closer to the due date. The result… during a period while management knew Cash was King, they were able to monitor small but significant changes in our portfolio aging.
Message:
In response to Bob Shultz’s challenge to share our experiences, I offer the following…
Over the past two years, I’ve concentrated on providing more defined information to management. Many companies use large buckets to capture their past due aging detail: 1-30, 31-60, 61-90, and so on. I initiated programming changes (with the help of my friends in IT) to report much smaller buckets: 1-7, 8-14, 15-30, 31-60 and then 30 day intervals through 180. By doing so, I was able to tell the story of how our portfolio was performing – to a very granular level – which highlighted our efforts to pull customer payments closer to the due date. The result… during a period while management knew Cash was King, they were able to monitor small but significant changes in our portfolio aging.
Replies
Subject: Re:Successful Techniques Used
Submitted on 09-02-10 4:36 pm.
Message:
Thank you Frank. I has always amazed me how senior execs in companies think DSO is a tell all for collection performance. In reality fewer than most really understand it.
To clearly communicate the credit and collections' departments role in DSO performance I like to break the DSO down in to its' major drivers. When you do this it points the finger at factors driving DSO performance outside the control of the credit and collections department.
For example break DSO down by:
Days Current: If it is not due you can't collect it. If the Sales/Marketing folks are offering extended terms it will show up here. That is sometimes quite revealing to a CFO or CEO.
Days Collectible and Past Due: This is your responsibility. Fortunately it is usually a minor driver of DSO. If certain accounts are driving this you can report reasons, what is being done, who has the ball and when the issues will be resolved.
Days Disputeed: This can be significant in some companies. If there are certain types of disputes that are heavily impacting performance you can break this down in to disputes by type. This points the finger to other departments in the quote to cash process that should be held accountable for DSO performance. (Pricing, shipment or return processing issues, product quality, rebates etc.) These issues can point to areas where you can lead the process improvement charge. In some cases major issues being driven by particular customers are revealed.
In my experience this DSO breakdown is always interesting and surprisingly revealing.
Message:
Thank you Frank. I has always amazed me how senior execs in companies think DSO is a tell all for collection performance. In reality fewer than most really understand it.
To clearly communicate the credit and collections' departments role in DSO performance I like to break the DSO down in to its' major drivers. When you do this it points the finger at factors driving DSO performance outside the control of the credit and collections department.
For example break DSO down by:
Days Current: If it is not due you can't collect it. If the Sales/Marketing folks are offering extended terms it will show up here. That is sometimes quite revealing to a CFO or CEO.
Days Collectible and Past Due: This is your responsibility. Fortunately it is usually a minor driver of DSO. If certain accounts are driving this you can report reasons, what is being done, who has the ball and when the issues will be resolved.
Days Disputeed: This can be significant in some companies. If there are certain types of disputes that are heavily impacting performance you can break this down in to disputes by type. This points the finger to other departments in the quote to cash process that should be held accountable for DSO performance. (Pricing, shipment or return processing issues, product quality, rebates etc.) These issues can point to areas where you can lead the process improvement charge. In some cases major issues being driven by particular customers are revealed.
In my experience this DSO breakdown is always interesting and surprisingly revealing.
Subject: Re:Successful Techniques Used
Submitted on 09-03-10 1:45 pm.
Message:
To piggyback on Bob's comment, I provide each month, a trend graph to each Business Manager which plots:
1) DSO
2) BPDSO (best possible DSO)
I always emphasize that the "ideal" situation is to have the DSO and the BPDSO at exactly the same number. We (Credit) can influence ONLY the numerator, but they (Sales) can influence both the numerator and the denominator.
The result is that DSO versus BPDSO is now a metric by which both Credit & Sales are being measured.
Message:
To piggyback on Bob's comment, I provide each month, a trend graph to each Business Manager which plots:
1) DSO
2) BPDSO (best possible DSO)
I always emphasize that the "ideal" situation is to have the DSO and the BPDSO at exactly the same number. We (Credit) can influence ONLY the numerator, but they (Sales) can influence both the numerator and the denominator.
The result is that DSO versus BPDSO is now a metric by which both Credit & Sales are being measured.