Pop Quiz – Do You Know These 5 Credit/Accounts Receivable Details?

A petroleum distributor’s accounts receivable asset class will typically be its #2 or #3 largest dollar balance sheet item. It is not uncommon for more dollars to show up in accounts receivable than in real estate or rolling stock. Because accounts receivable aging is tended to by the credit department, it’s a good management practice to know more about this critical asset class and associated department than what just shows up in the aging buckets.

Here’s a pop quiz to test your knowledge of Top 5 Credit/Accounts Receivable details:

1. What are the quarterly trends for a few key KPIs, over a running two-year period? Are they tracking up, down, steady? Popular KPIs include Days Sales Outstanding, Best Possible Days Sales Outstanding, Collection Effectiveness Index, % Over 60 Days Past Due.

2. What are the inflated columns of your aging, and why are they in that condition? Significant amounts of dollars in the Over 10 column may indicate small annoying issues with invoicing or cash application.  Inflation of the Over 60 column is a sign of poor credit decisions and collection efforts. High dollar amounts in the Over 90 column may indicate a poor process for bringing in third party collectors or legal action. Be sure your collectors are making use of available back-office technology to touch your past due customers quickly and frequently.
3. What customers make up the Top 10 Collection Headaches  and what’s the plan to collect those dollars? Frequently just a few customers make up this distinguished list, and collecting those outstanding balances would add significant dollars to cash These are the customers that might need a high level, in- person visit to discuss the game plan for bringing them current. These customers are frequently thought of as “best customer” to salespeople unaware or not paying attention to the high cost of slow pay habits.
4. What bottlenecks are problematic in the credit department? An example would be a high volume of customer credit applications being submitted only halfway completed. Another example is billing and invoicing issues that create lots of phone calls and research time in the credit department. It is highly possible your credit folks aren’t complaining enough about other department problems floating down to be solved by credit staff, but it can be a very big issue.
5. (My favorite) Why are your customers calling the credit department? Do you have any idea how many calls come through in a typical week, and why are these calls burning up staff time? Frequently, the calls are about problems that need to be not only fixed, but traced up the ladder to the source of origin within another department like billing or pricing. The Credit Research Foundation reports a current trend to merge certain tasks between Customer Service and Credit to create the most efficient customer experience. Whatever can be done to lessen the amount of interruptions will result in a more highly efficient credit department.

   Executive level management having a good grasp on these Top 5 Credit Issues is a great step to improving the efficiency and results of this most important department!