Using KPIs to Bolster Collections

Using KPIs_v2

How well is your collections team performing? And how do you know? If you aren’t using key performance indicators (KPIs), it’s time to rethink your strategy. Although there are some KPIs that are well-known and commonly used, this list suggested by Thomson Reuters also includes a few you may not be measuring and may find useful:

Days sales outstanding (DSO). Probably the most familiar of this group, DSO tells you how long customers are taking to pay after an invoice has been generated. There is some controversy about using this to evaluate the collections team, however, because they have no control over the sales component of the metric.

Collector effective index (CEI). While similar to DSO, CEI measures the dollar amount collected over a specific period of time relative to total receivables for that period. It’s expressed as a percentage. It’s also controversial, for the same reason DSO is.

Right party contacts rate (RPC). This KPI measures the ratio of outbound calls to valid phone numbers (“right parties”)—although this is more of an issue for consumer debt than for business debt.

Calls resulting in promise to pay (PTP). This one is self-explanatory, and is expressed as a percentage of total collections calls.

Profit per account (PPA). What’s the average impact of each account to your organization’s bottom line? For a specific period, take gross profit (revenue minus expenses), and divide by the number of delinquent accounts for that same period.

A Few Things to Consider

Don’t just measure for the sake of measurement. You’ll need to think through where your challenges lie and select KPIs that can tell you whether you’re really making improvements that matter.

You’ll find that some KPIs are better for measuring staff performance—those are the ones where the team has control over all the variables measured by the KPI. Other measurements may be useful to the organization in some way, but should probably not be used to evaluate employee performance, like DSO.

Because other departments influence certain KPIs, it can be difficult to untangle a process to determine where improvements can be made, and equally difficult to sort out what factors are affecting any observed change—and who’s contributing to those changes. While that’s not to say those KPIs shouldn’t be used, collaboration among those who influence them is essential to making improvements. Adjusting one piece of a process at a time and measuring the effect will be more revealing than trying to fix a lot of steps at once.

And of course, you’ll want to report those factors to management along with the numbers, to make certain they understand your strategy for improvement and what the KPIs are actually telling you.

 

Additional Resources

https://www.thearnetwork.com/best-practices/aro2c-policies/aro2c-policies-terms/dso-really-getting-paid-time/

https://www.thearnetwork.com/best-practices/benchmarksmetrics/fundamentals/just-say-no-to-dso/

https://www.thearnetwork.com/best-practices/benchmarksmetrics/fundamentals/case-study-using-kpis-drive-ar-continuous-improvement/

https://www.thearnetwork.com/leadership/tactical-issues/four-keys-solid-ar-performance-management/