How to Identify Financial Distress in Clients Early

Every business cherishes its reliable, long-standing clients. They pay on time, communicate clearly, and contribute consistently to your bottom line. But what happens when these “good clients” start to falter? When late payments become the norm, excuses pile up, or communication suddenly stops?

It’s a scenario many businesses dread, and one that often signals more than just a momentary oversight. It can be a tell-tale sign of deeper financial distress within your client’s own operations. Missing these subtle cues can lead to significant revenue loss, strained relationships, and a draining of your internal resources.

At Leib Solutions, we believe in a proactive, ethical approach to accounts receivable management. Understanding the financial health of your client portfolio is not just about protecting your own cash flow; it’s about anticipating challenges, fostering resilient partnerships, and making informed decisions. This post will equip you with insights to spot those early warning signs and guide you on how to respond strategically and ethically.

The Subtle Shifts: Early Warning Signs to Watch For

The first indicators of financial trouble are rarely a dramatic collapse. Instead, they often manifest as subtle deviations from established patterns. Training your team to recognize these changes is crucial.

1. Shifts in Payment Behavior

This is often the most direct, yet sometimes overlooked, signal.

Increasing Payment Delays: A client who once paid consistently at 30 days suddenly pushes to 45, then 60, then 90. It’s not just a single late payment, but a growing trend of tardiness.
Partial Payments: Receiving only a portion of the outstanding invoice without prior agreement. This can be a tactic to string out payment or manage limited cash flow.
Frequent Payment Disputes: Suddenly, old invoices are being disputed for minor issues, or new, vague “concerns” arise that delay payment. This can be a deliberate stalling tactic.
Requests for Unconventional Payment Terms: A client accustomed to standard net-30 terms now requests installment plans, extended terms, or asks to pay in atypical ways (e.g., through third-party services they didn’t use before).
“Check’s in the Mail” Syndrome: Repeated promises that payment is “just about to arrive,” followed by no actual payment.

2. Communication and Operational Cues

Beyond the numbers, how your client interacts and operates can offer valuable insights.

Communication Avoidance: Your calls or emails to key contacts in their finance or procurement departments go unanswered, or responses become evasive and non-committal.
Reduced Order Volume/Frequency: A significant and unexplained drop in the quantity or regularity of orders from a previously reliable client. This could indicate a slowdown in their own business or a shift to cheaper suppliers.
High Personnel Turnover: Especially in their finance, procurement, or upper management. This can signal internal instability or a scramble to cut costs.
Increased Vendor Shopping: You notice your client suddenly soliciting bids from numerous new suppliers, even for services or products they previously sourced exclusively from you. They might be desperately searching for lower costs.
Complaints about Their Own Clients: Hearing from them about their struggles to collect from their customers. While this can elicit empathy, it also indicates their own A/R challenges.

3. Public and Market Indicators

These require a bit more proactive monitoring but can provide macro-level insights.

Negative Public Perception: Unfavorable news articles, negative social media chatter, or a sudden downturn in their public reputation.
Industry Downturn: Being aware of broader economic challenges or specific trends impacting your client’s industry. If their sector is struggling, they likely are too.
Layoffs or Restructuring Announcements: Public statements about workforce reductions, significant operational changes, or a merger/acquisition that seems like a distress signal.
Changes in Commercial Credit Ratings: While not always publicly accessible, a significant drop in their credit score from agencies can be a strong indicator of rising risk.

The Responsible Response: Navigating Difficult Conversations

Spotting the signs is just the first step. How you respond can significantly impact your recovery rates and, crucially, the long-term health of your business relationships. The key is to move from a reactive, accusatory stance to a proactive, empathetic, and strategic one.

Internal Alignment: Ensure your sales, accounts receivable, and management teams are on the same page regarding the client’s status and the chosen response strategy. Inconsistent messaging can erode trust.
Proactive and Empathetic Outreach:
- Shift the Tone: Instead of immediately demanding payment, initiate a conversation with an empathetic tone: “We’ve noticed a recent change in payment patterns, and we wanted to check in to see if everything is alright on your end and if there’s anything we can do to help.”
- Listen Actively: Be prepared to listen more than you talk. Your goal is to understand their challenges, not to preach.
- Offer Solutions (If Appropriate): If their distress is temporary, can you offer a short-term, mutually agreed-upon payment plan? This gesture can build immense goodwill.
- Maintain Professionalism: Regardless of their situation, always communicate with respect and professionalism.
Document Everything: Meticulously record all communications, agreed-upon terms, and payment promises. This is vital for clarity and, if necessary, for any future recovery efforts.
Know When to Draw the Line: While empathy is crucial, a business must protect itself. There comes a point where continued forbearance becomes detrimental. Establish clear internal thresholds for when to transition from a supportive partner to initiating a more formal collection strategy. This line is often blurred for internal teams, which is where external expertise becomes invaluable.

When Internal Efforts Fall Short: The Strategic Role of a Specialized Partner

Even with the best intentions and internal protocols, managing a financially distressed client can be incredibly challenging. This is where the specialized expertise of a commercial collections company like Leib Solutions becomes a strategic asset.

Objective Perspective: Your internal team has existing relationships and may be emotionally invested. A third party brings objective distance, allowing for clearer, more effective negotiation without damaging long-term ties.
Relationship Preservation through Professionalism: Our “No Noise” approach is specifically designed to recover funds while minimizing friction and maintaining the viability of your client relationships. We act as a professional buffer, allowing you to focus on your core business.
Specialized Expertise and Resources: We possess the legal knowledge, negotiation acumen, and advanced tools to navigate complex financial situations. This includes understanding the nuances of commercial law and effectively managing disputes.
Efficiency and Focus: Engaging an expert allows your internal A/R team to focus on current accounts and healthy relationships, significantly reducing administrative burden and freeing up valuable resources.
Improved Recovery Rates: Often, early engagement with a specialized agency, even at the first signs of trouble, can lead to significantly higher recovery rates than prolonged internal efforts. Our experience helps us assess the true likelihood of recovery and implement the most effective strategies.

Recognizing when a good client is heading down a difficult financial path is a critical skill for any business. Acting ethically and strategically, whether internally or through a specialized partner, protects your cash flow, preserves relationships, and ultimately strengthens your overall financial resilience.

Ready to Proactively Safeguard Your Accounts Receivable?

If you’re noticing these warning signs in your client portfolio and are seeking an ethical, effective partner to navigate complex financial challenges, Leib Solutions is here to help.

Contact us today for a confidential consultation.

June 6, 2025 Collection Management, Credit Management

Unlock Sustainable Growth: Why Your Accounts Receivable KPIs Are the Ultimate Strategic Compass

Cash flow is the undisputed lifeblood of any business, directly influencing its operational capacity, investment potential, and overall resilience. Within this critical financial ecosystem, Accounts Receivable (AR) isn’t just an accounting entry; it’s a strategic asset reflecting your company’s future liquidity and its ability to convert sales into tangible cash.

Yet, businesses frequently grapple with the pervasive challenge of overdue payments. These delays tie up working capital, creating cash flow shortages that hinder daily operations, limit strategic investments, and ultimately stifle growth. This financial friction impacts everything from payroll to product development.

Mastering Accounts Receivable Key Performance Indicators (KPIs) and strategically managing collections are paramount for transforming your company’s financial health. By moving beyond basic definitions and embracing a strategic perspective, businesses can unlock significant value and build a more resilient financial future.

Deconstructing Key Accounts Receivable Performance Indicators

Understanding core AR KPIs is crucial for gaining actionable insights into your financial health.

Days Sales Outstanding (DSO): This fundamental metric quantifies the average number of days it takes to collect revenue after a sale. A consistently high DSO signals inefficient collections, potential liquidity issues, and impending cash flow problems. Conversely, a low DSO indicates a highly efficient cash conversion cycle. High DSO can lead to seeking external financing, incurring interest expenses, and limiting investment in growth opportunities. It can also signal underlying issues in credit policy, invoicing accuracy, or customer relationship management.
Days Delinquent Outstanding (DDO): DDO offers a more granular perspective by measuring the average number of days accounts receivable are past due. Unlike DSO, DDO focuses specifically on overdue accounts. A rising DDO indicates increasing collection challenges and a heightened risk of bad debt. It functions as an early warning system for broader economic downturns or internal weaknesses in credit vetting. Mishandling delinquent accounts can lead to client relationship damage and lost revenue.

Beyond DSO and DDO, other vital KPIs offer a comprehensive view of AR health:

Collection Effectiveness Index (CEI): CEI measures how effective a company is at collecting its receivables over a specific period. A CEI closer to 100% signifies superior collection performance.
Accounts Receivable Turnover Ratio: This ratio indicates how many times a company collects its average accounts receivable balance during a given period. A higher turnover ratio generally suggests efficient credit and collection practices.
Bad Debt Ratio: This expresses the percentage of uncollectible accounts relative to total receivables or credit sales. A lower ratio indicates effective credit management and successful collection efforts, minimizing direct hits to the bottom line.

These KPIs are deeply interconnected. For example, a high DSO and DDO will predictably correlate with a lower CEI and A/R Turnover, and consequently, a higher Bad Debt Ratio. Analyzing these metrics holistically allows financial decision-makers to identify specific weaknesses and formulate targeted improvement strategies.

The Unseen Costs of Suboptimal Accounts Receivable Management

Failing to manage AR effectively extends far beyond mere lost revenue, incurring a range of profound, often unseen, costs.

Impact on Liquidity, Working Capital, and Investment Capacity: Unpaid invoices tie up capital, restricting a company’s ability to meet immediate financial obligations. This lack of accessible cash can lead to cash flow shortages, hindering daily operations and limiting investment in strategic growth initiatives.
Operational Inefficiencies and Resource Drain: Suboptimal AR management creates significant operational inefficiencies. Companies expend considerable time and effort on internal collections, diverting staff from their primary, value-generating roles. This “invisible tax” on productivity means valuable expertise is directed towards non-core, high-stress activities, hindering strategic objectives and delaying new revenue generation.
Erosion of Profitability and Increased Risk of Write-offs: Late payments directly erode a company’s net profit. As debts age, their collectibility diminishes, increasing the likelihood of bad debt write-offs, which are direct hits to the bottom line.
Potential Strain on Client Relationships: Aggressive or unprofessional internal collection tactics carry a substantial risk of alienating valuable customers. Losing a client over a collection dispute can be far more costly than the debt itself, leading to customer churn, reputational damage, and a reduction in Customer Lifetime Value (CLTV).

Strategic Pathways to AR Optimization and Enhanced Collections

Optimizing Accounts Receivable requires a proactive and multi-faceted approach.

Proactive Invoicing, Credit Policies, and Communication: Effective AR management begins with clear, accurate, and timely invoicing. Establishing robust credit vetting processes for new clients can significantly minimize default risk. Consistent and professional communication with customers regarding payment terms and reminders can dramatically improve collection rates.
Identifying the Inflection Point for Escalating Collection Efforts: Despite best practices, some accounts will become overdue. The crucial moment when internal efforts become less effective or too costly typically occurs when accounts move beyond 60-90 days past due. At this stage, the likelihood of collecting the debt through internal means decreases significantly, reflecting the “value decay” of the debt.
The Strategic Decision: When and Why to Engage External Collections Expertise: Engaging external collections expertise should be viewed as a strategic business decision, not a sign of internal failure. It’s particularly beneficial when facing a high volume of overdue accounts, dealing with complex debts, preserving valuable customer relationships, or when internal resources are stretched thin.

The Strategic Advantage of Partnering with Commercial Collections Experts

Partnering with professional commercial collections agencies offers a distinct strategic advantage.

Leveraging Specialized Expertise: Agencies possess deep expertise in debt collection laws and regulations, mitigating legal and reputational risks that internal teams might inadvertently incur. They employ trained negotiators skilled in advanced techniques and understand industry-specific payment behaviors.
Driving Efficiency and Allowing Internal Teams to Focus on Core Competencies: Outsourcing collections frees up valuable internal resources—finance, sales, and administrative staff—allowing them to concentrate on revenue-generating activities and strategic initiatives. This optimizes human capital allocation, contributing to long-term competitive advantage and growth.
Protecting and Preserving Valuable Client Relationships: Professional agencies act as a neutral third party, using tactful and diplomatic communication to maintain goodwill and the possibility of future business. This contrasts with the potential for internal teams to damage relationships through aggressive tactics. Agencies can often recover debt while preserving client relationships, transforming a potentially adversarial situation into one of mutual understanding.
Quantifiable Improvements in Recovery Rates and KPI Performance: Professional agencies consistently demonstrate higher success rates, often improving recovery rates by up to 30%. This enhanced recovery directly translates into improved cash flow and a stronger financial position, providing the financial fluidity necessary for reinvestment and strategic advantage.

While internal collections might seem like the default, a strategic evaluation reveals that professional agencies offer a more robust, compliant, and ultimately more profitable solution for optimizing Accounts Receivable.

Conclusion

Accounts Receivable KPIs are far more than mere accounting metrics; they are vital diagnostic tools and strategic compasses for your company’s financial health. A deep understanding and continuous monitoring of these indicators provide crucial insights into your business’s liquidity, operational efficiency, and overall profitability.

In an unpredictable economic landscape, businesses aiming for sustained financial resilience must recognize that expert collections are not merely a reactive service for bad debt. Instead, partnering with commercial collections agencies should be viewed as a proactive, strategic decision. By leveraging external expertise, companies can optimize cash flow, mitigate significant financial and reputational risks, and ensure the sustained financial agility necessary for long-term success. This strategic collaboration transforms a potential liability into a powerful asset, fostering a more resilient and growth-oriented financial future.

March 26, 2025 Collection Management

12 Step Program to Collect A/R Faster

Understanding the Debtor’s Psychology

Many debtors believe that if an invoice is 180 to 360 days past due, they’ll never have to pay it—at least not in full. Others simply take their time, knowing they won’t face serious consequences. But slow-paying customers can be “retrained” into becoming reliable, profitable long-term accounts—with consistent, proactive attention.

Here’s the hard truth:

If you allow late payments, customers will pay late.
Cash flow suffers when customers dictate your terms.
If you don’t follow up, they assume you’ve moved on.
Bad debt grows from neglected receivables.

In fact, debts are 200% more likely to be collected if assigned at 90 days past due compared to 360 days. Collections isn’t personal—it’s a business necessity. If you don’t collect what you’re owed, it means your competitors get to the head of the line for payment.

Routine A/R Collections Is a Production Job

Accounts receivable management isn’t just about follow-up—it’s a production process that can be engineered for efficiency. With a clear strategy, the right tools, and consistent execution, you can significantly reduce DSO, improve cash flow, and cut delinquencies in half—or more.

Here’s a proven 12-step program to improve your collections:

Create Clear Credit & Collection Policies

Don’t leave it to chance or individual discretion. Every company—large or small—needs a documented credit and collections policy. It should define:

Credit limits and terms
Contact frequency
Escalation paths
When to restrict credit or assign accounts to an agency

Share your policy with customers at onboarding, ideally as part of your credit application. If not, send it afterward to set expectations early.

Prioritize for Impact

Focus your team’s effort where it counts—on accounts with the greatest cash flow potential or highest risk. If possible, use tools that prioritize by aging, amount, and risk scores. For aging accounts or overflow work, consider outsourcing to a professional agency like Leib Solutions to maintain consistent follow-up.

Set Performance Standards

Collections is a job—so treat it like one. Without clear performance metrics, staff may avoid the uncomfortable task of asking for money. Set and track KPIs such as:

Daily calls and emails
Promise-to-pay rates
Disputes resolved
Monthly cash targets
DSO improvement

Assign Goals by Team and Collector

Set monthly and daily goals for each collector and department. Use reporting to track:

Activity (calls, emails, touches)
Cash collected
Disputes resolved
Broken promises

Match collection goals to company-wide cash flow objectives. Transparency keeps teams aligned and accountable.

Use E-Signatures and Online Credit Apps

Speed up the credit approval process with automated applications and e-signatures. This streamlines onboarding and eliminates faxing and delays. Use the same tools for promises-to-pay or settlement agreements to reduce friction and save time.

Standardize Emails and Scripts

Don’t let each team member create their own communication strategy. Provide:

Collection email templates
Call scripts
Voicemail messages

These should reflect your brand’s professionalism and tone. Use snail mail only when necessary (e.g., final notices, certified demand letters).

Make It Easy to Pay

Offer multiple payment options for small and mid-size customers:

ACH
Credit card
E-check

Removing payment barriers increases compliance and reduces excuses.

Keep Contact Info Up to Date

Always collect and verify:

AP email address
Controller’s contact
Executive contact (for escalation)
Cell phone (for small business owners)

Add these fields to your credit application. Too many companies delay collections simply because they don’t know who to call.

Use Workflow and Automation Tools

If you’re managing receivables on spreadsheets, it’s time to upgrade. SaaS platforms like Carixa automate routine tasks, organize workflows, and ensure consistent follow-up. The result: faster collections, lower DSO, fewer disputes, and reduced overhead.

Accelerate the Collection Cycle

Don’t wait 30 days to start collecting. Proactive follow-up makes all the difference:

Send a friendly reminder a few days before the due date
Call if no response within 3 days
Escalate quickly if payment is delayed

Use email for everything—invoices, follow-ups, supporting docs. It removes excuses and speeds resolution. And don’t hesitate to apply credit holds when necessary.

If you’re getting nowhere, assign the account to a collection agency and move on to current A/R.

Train Your Staff

Collections requires skill and confidence. Train your team on:

Phone etiquette and negotiation
Conflict resolution
Your internal collection policies
Legal considerations (e.g., FDCPA for consumer accounts)

Professional training, role-playing, and coaching go a long way—especially with new or hesitant collectors.

Use Collection Agencies Strategically

When customers don’t pay, it’s time to escalate.

First-party outsourcing (under your name): Great for early-stage receivables and can be highly cost-effective.
Third-party collections: Traditional agency model with contingency fees—no collection, no fee.

Too many companies wait until an account is uncollectible before assigning it. That’s a policy failure. Assign accounts when they still have value.

As the saying goes: “75% of something is better than 100% of nothing.”

Take the First Step Today

A solid collections program doesn’t build itself—it starts with a decision and a plan. If you’re ready to improve cash flow and reduce bad debt, Leib Solutions is here to help with decades of experience, powerful systems, and personalized service.

Contact us today to learn how we can optimize your receivables and recover what you’re owed—faster.

November 14, 2024 News Post a Comment

B2B Credit and Collection: Best Practices for Healthy Cash Flow

Extending credit to B2B customers can be a powerful driver of sales growth, but it requires careful management to minimize financial risk. Here’s how to optimize your credit and collection operations:

Leverage Technology

Cloud-Based AR Software: Say goodbye to outdated spreadsheets and hello to automation! Modern accounts receivable software streamlines your entire order-to-cash process, automating tasks like credit checks, collections, invoice generation, payment processing, and reporting. This not only saves time and reduces errors but also provides real-time visibility into your cash flow. Look for features like:
- Automated credit scoring: Integrate credit scoring systems to quickly assess customer risk.
- Customizable workflows: Set up automated reminders, escalations, and follow-up actions based on customer segments and payment behavior.
- Real-time reporting and analytics: Track key metrics like Days Sales Outstanding (DSO), Collection Effectiveness Index (CEI), and bad debt expense to identify trends and areas for improvement.
- Seamless integration: Ensure your AR software integrates with your accounting system and other business applications for a unified view of your finances.

Establish Clear Credit Policies

Define the essentials: Develop a comprehensive credit policy document that outlines:
- Credit limits: Determine the maximum amount of credit to extend to each customer, considering factors like their financial stability, credit history, and industry risk.
- Payment terms: Clearly define payment due dates (e.g., Net 30, Net 60) and acceptable payment methods.
- Early payment discounts: Offer incentives for prompt payment to encourage timely cash flow.
- Late payment penalties: Clearly communicate consequences for late payments, such as interest charges or late fees.
Go beyond credit scores: While credit scores provide a useful snapshot of creditworthiness, don’t rely on them solely.
- Obtain business credit reports: Use agencies like Dun & Bradstreet or Experian to get a detailed view of a customer’s credit history, including payment trends, any legal filings, and other relevant information.
- Analyze financial statements: Review the customer’s balance sheet and income statement to assess their financial health and ability to meet their obligations.
- Contact trade references: Reach out to other businesses that have extended credit to the customer to gain insights into their payment behavior.
Segment customers: Develop different credit policies for different customer segments. For example, high-value customers or those with a long history of on-time payments may qualify for more favorable terms.

Monitor Payment Behavior

Proactive monitoring is key: Don’t wait for payments to become overdue. Use your AR software to:
- Track payment activity in real-time: Monitor payment dates, amounts, and any discrepancies.
- Generate aging reports: Regularly review aging reports to identify overdue invoices and prioritize collection efforts.
- Analyze payment patterns: Pay close attention to any changes in a customer’s payment behavior, such as consistently late payments or a sudden increase in disputes, which could indicate potential financial distress.

Streamline Invoicing and Payments

Automated invoicing: Eliminate manual data entry and reduce errors by automating your invoicing process.
- Ensure timely delivery: Send invoices electronically to ensure prompt receipt by customers.
- Customize invoice templates: Maintain a professional image and include all necessary information.
Offer multiple payment options: Make it easy for customers to pay you by offering a variety of convenient payment methods, such as:
- Online payments: Provide a secure online portal for customers to make payments using credit cards or bank transfers.
- Credit card payments: Accept credit card payments to offer flexibility and improve cash flow.
- ACH transfers: Enable automated clearing house (ACH) payments for efficient electronic funds transfer.

Master the Art of Collections

Take a graduated approach: When payments are overdue, start with gentle reminders and gradually escalate your collection efforts.
- Friendly reminders: Send automated email or SMS reminders for recently overdue invoices.
- Formal communication: If reminders are ignored, send formal collection letters or make phone calls to discuss the outstanding payment.
- Negotiation and flexibility: Be willing to work with customers who are facing genuine financial difficulties. Consider offering payment plans, extending payment deadlines, or negotiating settlements to recover at least a portion of the debt.
- Collection agencies: As a last resort, consider engaging a professional collection agency to recover the debt.
Maintain thorough documentation: Keep detailed records of all collection activities, including communication logs, payment agreements, and any legal actions taken.

Continuous Improvement

Regularly review your policies and procedures: The business environment is constantly changing, so it’s important to review your credit and collection practices periodically to ensure they remain effective and aligned with your business goals.
Track key performance indicators (KPIs): Monitor metrics like DSO, CEI, and bad debt expense to measure the effectiveness of your credit and collection efforts. Analyze trends and identify areas for improvement.
Stay informed about industry best practices: Keep up-to-date on the latest trends and technologies in credit and collections to optimize your processes and stay ahead of the curve.

By implementing these comprehensive best practices, you can transform your credit and collection operations from a reactive function to a strategic asset, driving sales growth, strengthening customer relationships, and ensuring a healthy cash flow for your business.

June 18, 2024 Accounts Receivable, Collection Management, Credit Management Post a Comment

A/R Invoice Collectibility By Age

The average collectibility for B2B invoice receivables by age can vary widely depending on industry, customer base, economic conditions, and credit practices. However, a general trend can be observed in how the likelihood of collection changes over time.

The time for outside, “third-party” collection agency action is when the debt may still be collectible, best from 90-120 days past due. Waiting too long is to invite a total write-off.

Here’s a typical breakdown by age of receivables:

0-30 Days Past Due:
- Collectibility: 95% to 97%
- Comments: Most recent invoices are usually collected without significant issues, as they are within standard payment terms.
31-60 Days Past Due:
- Collectibility: 80% to 90%
- Comments: These receivables might require follow-up reminders or slight collection efforts. The probability of collection remains high but begins to decrease.
61-90 Days Past Due:
- Collectibility: 60% to 75%
- Comments: At this stage, the collectibility decreases more noticeably. More aggressive collection actions might be required.
91-120 Days Past Due:
- Collectibility: 30% to 40%
- Comments: Receivables older than 90 days are increasingly difficult to collect. This often requires significant effort or third-party collection agencies.
121-180 Days Past Due:
- Collectibility: 40% to 50%
- Comments: The probability of collecting these receivables is low. Legal action or substantial incentives may be necessary to recover some of these debts.
181+ Days Past Due:
- Collectibility: Less than 50%
- Comments: Receivables in this category are often considered highly unlikely to be collected and might be written off as bad debts.
360+ Days Past Due:
1. Collectibility: Less than 70%
2. Comments: Receivables in this category are often considered highly unlikely to be collected and might be written off as bad debts.

These percentages can fluctuate based on specific business practices, customer relationships, and economic conditions. Maintaining good credit management and proactive collection efforts can help improve the collectibility of receivables.

From the practitioners at Leib Solutions LLC, a Smyyth company

May 20, 2024 News Post a Comment

A/R Deduction Recoverability by Age

Accounts Receivable deductions can dilute revenues from 5% in industrial companies to 20% in consumer products companies. These deductions arise from various issues, including ordering and billing errors, returned merchandise, pricing discrepancies, trade promotion deals, payment discounts, shipping errors, and non-compliance with customer vendor policies.

Deduction overcharges, far from being exceptional, are a common occurrence. Many deductions contain errors that can significantly impact sellers’ profits. For instance, up to 50% of returns are overstated due to SKU, price, or quantity errors. Post-audit deductions, which result from post-payment reviews, can be over 75% incorrect. Errors in trade deals and volume discount deductions are often substantial. These inaccuracies underscore the need for efficient reconciliation and resolution processes to mitigate the potential for significant and sometimes hidden revenue and profit losses.

Reconciling deductions against related credit memos is challenging due to the volume and variety of SKUs. Our extensive experience and specialized software enable us to reconcile and identify overcharges on any scale, even spanning several years for a trading partner.

Deduction Staff and Systems

Other crucial factors in managing deductions include the experience of your staff and the time available to pursue these claims. The most effective A/R systems utilize automated bots to access claims from major retailers before deductions are made, allowing more time to resolve issues before automatic deductions occur. Some chain retailers even have time periods, say 60 days, after which they consider their claim valid and won’t discuss it. This underscores the need for a strategic approach to deduction management, considering both your staff’s capabilities and the process’s time constraints.

Twenty years ago, many deductions were “negotiable,” and 50/50 across-the-board settlements were sometimes possible. Today, you must prove the customer is wrong in specific detail and do it quickly. While most deductions are generally accurate, the average recoverability on gross deducted amounts ranges between 10% and 20%, depending on factors like your industry, customer base, processes, systems, and the speed of your investigation. There is a lot of money involved.

Information You Get from Analyzing Deductions

Analyzing customer Accounts Receivable (A/R) deductions can uncover various operational errors impacting a company’s financials and operations, so your systems should include root cause accountability, enabling you to eliminate systemic process failures. Here are some common types of operational errors that can be identified:

1. Pricing Errors

Incorrect Pricing: Not billing according to the P.O. terms.
Misapplied Discounts: Applying discounts incorrectly or not applying agreed-upon discounts.
Price Changes Not Updated: Customer failure to update systems with current pricing information.

2. Shipping and Delivery Errors

Incorrect Shipments: Using the wrong carrier, not calling for appointment windows.
Late Deliveries: Delivering products later than agreed, causing penalties.
Shipping Damage: Products damaged during shipping, leading to returns or deductions.
Freight Charges Errors: Incorrectly billed shipping and handling charges.

3. Compliance and Contractual Errors

Non-Compliance with Vendor Policies: Not adhering to customer’s specific vendor compliance requirements.
OTIF failures

Contractual Non-Compliance: Failing to meet terms and conditions stipulated in contracts.
EDI Errors: Issues related to Electronic Data Interchange, such as incorrect formats or missing data.

4. Trade Promotion and Discount Errors

Promotion Misapplication: Incorrectly applying trade promotions and discounts.
Unauthorized Deductions: Customers taking unauthorized deductions without proper agreement.
Rebate and Allowance Mismanagement: Errors in calculating or applying rebates and allowances.

5. Returns and Refund Errors

Misprocessed Returns: Incorrect processing of returned goods, leading to overstated returns.
Return Authorization Issues: Not properly authorizing returns, resulting in disputes and deductions.
Restocking Fee Misapplication: Failing to apply restocking fees where applicable.

6. Order Processing Errors

Order Entry Mistakes: Errors in entering orders into the system, leading to incorrect fulfillment.
Miscommunication: Issues stemming from poor communication between sales, billing, and shipping departments.

7. Inventory and Stock Management Errors

Stock-Out Situations: Failure to fulfill orders due to inventory shortages.
Overstock Situations: Accumulating excess inventory leading to potential obsolescence or markdowns.
Incorrect Stock Levels: Discrepancies between actual and system-recorded inventory levels.

8. Data Entry and System Errors

Manual Entry Errors: Mistakes in entering data manually, leading to inaccuracies.
System Integration Failures: Problems with the integration between different systems, causing data inconsistencies.
Outdated Information: Using outdated customer or product information in transactions.

By identifying and addressing these operational errors through A/R deductions analysis, companies can improve their processes, reduce revenue leakage, and enhance overall operational efficiency.

Lastly — Time is of the Essence to Recovery of Deduction Errors

The collectibility of deductions varies based on the type of claim, the systems and documentation you have, and the time it takes to complete your investigation and reconciliation.

A critical factor is the time it takes to research, reconcile, and prove overcharges, which often takes months, during which the likelihood of collectibility plummets. Deduction value depreciates far faster than invoice receivables so time is of the essence in tackling this challenge.

For instance, while an average overcharge rate of 14% might be assumed, this figure can be misleading. Some deductions may be entirely uncollectible (0%), while some may be fully recoverable (100%). The true nature of each deduction is only revealed through a thorough investigation.

This is where the value of intelligent automation and experienced deduction audit staff becomes evident. Automated A/R systems, like Smyyth’s advanced Carixa, for example, can cut the time it takes to document deductions from weeks to one or two days, immensely increasing the collection rate of deduction errors. Professional staff with access to this type of software could produce ROI of 100% or more.

From the practitioners at Smyyth LLC

June 19, 2023 Accounts Receivable, Collection Agency Tips, Collection Management, Credit Management Post a Comment

Collection Agency Should be Part of Your Collection Workflow

All businesses face cash flow issues during challenging economic climates, making it especially difficult to collect customer payments within the agreed-upon terms. To optimize your collection efforts and cash flow, it is essential to reevaluate the priorities of your collection department, including the utilization of third-party collection agencies. Making timely referrals to these agencies for bad debts can significantly improve collection results while minimizing unnecessary costs.

Is Using an Agency a Collection Failure or an Integral Part of the Process?

Needing a collection agency does not represent your department’s collection failure, as a certain percentage of all customers are destined to fall into this category regardless of how hard to try to collect.
When your collector staff exhausts their efforts without yielding results, there comes the point of diminishing returns. In such cases, a timely collection referral can be a victory for your company.
Holding onto past-due accounts for extended periods diverts your staff’s attention from high-priority customers and balances, which are more profitable. Continuously pursuing payment from those who consistently fail to pay is an unproductive use of resources.
By allowing collection agencies to handle difficult cases, your internal collectors can focus on where the cash comes from rather than being tied up with long overdue unpaid balances. The longer an account remains past due, the more challenging it becomes to collect. Collectability decreases each month to the extent that after nine months, the likelihood of collection may be close to zero.

Important! Your past-due customers will seek other suppliers and you will lose business if you do not collect. Consequently, integrating timely collection agency referrals into your collection process is essential.

Considerations for Collection Agency Placements:

Utilize your internal resources for accounts 10 to 90 days past due, as they contribute 95% of your cash flow and offer a high return on your time investment. Allow your staff to focus on the accounts receivable that keep your business running.
Waiting beyond 90 to 120 days and hoping for collection before referring the account to a collection agency is counterproductive. Timely interventions are more likely to succeed.
Assigning accounts to a collection agency immediately grabs customers’ attention as they realize that the unpaid debt could negatively affect their credit bureau scores.
Collection agencies charge fees based only on the cash recovered, and a reputable agency increases the chances of successful collection.
The agency can tailor their collection tactics, employing a customer service approach when you hope for future business and a more assertive approach for chronic late payers.

When is the Right Time to Refer a Debt for Collection?

Consider the following five factors before deciding to refer a customer to a collection agency:

The account is 90 days late.
The customer has failed to follow through, broken a promise to pay, or become difficult to reach.
The customer has indicated financial difficulties.
Remember that your customers prioritize their cash payments, and they pay those who have taken more aggressive actions or whose products they need. You have become a low priority and will lose future revenues if you do not collect.

What to Look for in a Collection Agency:

When selecting a collection agency, keep the following eight factors in mind:

Membership in a professional organization such as the International Association of Commercial Collectors (IACC) upholds a strict code of ethics and legal compliance.
Agencies specializing in either B2B or consumer collections. Collecting from businesses is more challenging and requires specialized expertise. If you have commercial debt, choose a commercial bad debt agency.
A well-established track record, having been in business for many years.
The ability to communicate with the agency’s management before initiating business and during the collection process.
An excellent history of collection results and adherence to market-standard contingency fees.
Strong reviews, such as positive feedback from clients on platforms like Google, indicate trustworthy and quality relationships.

April 17, 2023 Accounts Receivable, Collection Agency Tips, Collection Management, Credit Management Post a Comment

Machine Learning in Credit & Collection Scoring

Managing receivables is a crucial aspect of B2B financial management. Late or unpaid invoices and bad debts can significantly impact cash flow, causing businesses to struggle to meet their financial obligations. Companies rely on various tools, including payment and credit scoring, to prioritize their B2B collection activities to stay on top of outstanding payments.

Payment history is an essential tool for managing B2B collections. It provides insight into customer behavior and can be used to prioritize collection efforts and focus on accounts most at risk of defaulting. For example, if a customer consistently pays late, it may be necessary to send reminders or follow up more frequently than with a customer who always pays on time.

Machine Learning (ML) is a branch of artificial intelligence that involves developing algorithms and models that enable computers to learn from data and make predictions or decisions without being explicitly programmed. In accounts receivable, machine learning is used to automate and optimize the remittance application process, the collections process, deduction validation, matching debits to credit memos, and cash forecasting.

Advanced accounts receivable management software often uses Machine Learning (ML) to analyze a wide range of data points, such as a customer’s payment history, credit score, industry, and geographic location. By combining this information with external data sources, such as economic indicators and market trends, ML algorithms can better predict a customer’s payment behavior. In addition, ML can automate many of the time-consuming and repetitive tasks involved in the AR collection process, such as sending reminders to customers, flagging overdue invoices, and prioritizing collection efforts.

6 Reasons to Use Machine Learning in AR Software

Predicting Payment Behavior: ML algorithms can analyze historical data on customer payment behavior to identify patterns and predict when and how much a customer is likely to pay. This can help collections teams prioritize their efforts and focus on customers most likely to pay.
Identifying High-Risk Accounts: ML algorithms can analyze a variety of factors, such as payment history, credit scores, and other financial data, to identify accounts that are at high risk of becoming delinquent. This can help collections teams proactively address potential issues before they become more serious.
Customizing Collection Strategies: ML algorithms can also be used to analyze customer data and identify the most effective collection strategies for each individual customer. For example, some customers may respond better to phone calls, while others prefer email or text messages.
Automating Collections Processes: ML algorithms can automate routine collection tasks, such as sending reminders or following up with customers. This can help collections teams be more efficient and effective while reducing the risk of human error.
Collection Agencies: Determining when to place a past-due debtor account with a third-party collection agency to maximize the chances of recovery. The natural tendency is to delay an agency placement decision and avoid recognizing a loss. Paradoxically, the result of decision avoidance and waiting too long is the bad debt they were trying to avoid. Consequently, companies can benefit from automating placement through ML or even some simple system rules concerning what to do when a receivable reaches X age.
Cash Forecasting: ML can improve financial operations by providing more accurate cash flow forecasting. Traditional AR software solutions typically rely on static assumptions about customer behavior and payment patterns, which can lead to inaccurate cash flow projections. ML algorithms can analyze historical payment data and identify trends and patterns that are likely to continue in the future. This can allow businesses to make more accurate cash flow projections and better plan for future expenses and investments.

Machine learning is a powerful tool for accounts receivable software because it can help collections teams make more informed decisions.

Using Natural Language Processing (NLP) in Accounts Receivable (AR) Software

An enhanced way that ML can improve the AR collection process is by using natural language processing (NLP) technology. NLP technology analyzes unstructured text data, such as emails, PDFs, and remittance backups, to extract meaningful insights.

In this context, NLP technology can analyze customer communications to identify issues preventing them from paying their invoices. For example, NLP algorithms can identify common complaints or issues that customers may be experiencing with the products or services provided. By addressing these issues, businesses can improve customer satisfaction and reduce the likelihood of late or missed payments.

Additionally, NLP technology can automate customer communications, such as sending payment reminders and follow-up emails. By automating these communications, businesses can reduce the time and effort required to follow up with customers manually.

In Summary

In conclusion, machine learning has the potential to revolutionize the way businesses manage their accounts receivable processes. By analyzing large amounts of data and identifying patterns and trends, ML algorithms can provide valuable insights into customer behavior, improve collections, and provide more accurate cash flow projections. As businesses continue to rely on technology to streamline their operations, machine learning in AR software will likely become increasingly common. Machine learning can potentially revolutionize B2B accounts receivable processes, including collections, dispute and deduction management, and invoice collections.

April 1, 2023 Collection Management Post a Comment

12 Step Program to Collect A/R Faster

The Debtor’s Psychology

A debtor figures that if their account is 180-360 days old, they’ll never have to pay it, and certainly not the full amount. Chronic slow-paying customers can be re-trained to be profitable, long-term relationships, but they require constant attention so they do not age out to become bad debts. With a little effort, you can cure customers’ slow payments.

Many large companies use software to optimize their Accounts Payable – they track how well you follow up and will pay you accordingly.
Small companies follow the same practice without the software – they pay you based on how you train them to pay you.

If you allow customers to pay late, they will pay late, and your cash flow suffers.
Past-due customers will order from your competitors rather than risk your asking them to pay up. Being a nice guy costs you sales.
If you ignore delinquencies too long, they will become your bad debt ex-customers. You lose both ways.
Debts are 200% more likely to be collected if assigned for collection at 90 days vs. 360 days.

This is a zero-sum game: if you do not collect what you are owed, your customer will pay another vendor who was more aggressive in their collection follow-up. Your customers will learn from your practices. Unfortunately, many companies wait until the customer is far past due before taking action.

Routine Accounts Receivable Collection is a Production Job

Like many repetitive processes, accounts receivable collections is a “production” operation and can be “re-engineered” to improve cash flow, reduce DSO and slash the disputes that result from letting unpaid accounts go stale.

Cash flow is the lifeblood of every business, and success or failure depends largely on how accounts receivable are managed. Collecting receivables more quickly enables you to reduce bank borrowing, invest more in growth, and improve profits. Our experience is that delinquencies can be dramatically reduced – cut in half, or even better with some planning and effort. Here are some basic ideas to implement in your organization.

1. Credit and Collection Policies

Do not leave it to individuals to decide policies and rules about how frequently the customer should be contacted for money and what the proper collection protocols should be.

Every company needs a credit and collection policy that provides the framework for the job. Management should develop this policy and detail the criteria and tools to be used (restricting credit, management scalation, collection agencies, etc.). Even a one-page credit and collection policy may be enough if you are a small company. Larger companies need to go into much more detail.

The customer should receive a written explanation of your credit and collection policies, outlining the business rules. Make it part of your Credit Application, but if not, email it afterward so they understand your business rules.

2. Prioritize Your Work

Prioritize collection activity so you are working on the receivables that offer the greatest cash flow payback. If you have an advanced system, you can also employ risk or payment scoring to assign the accounts needing first attention. You may also consider outsourcing all or part of the past-due collection function to a qualified agency, which usually produces more focused and better results and is often less expensive than full-time staff.

3. Collection Performance Standards

Most people do not like to ask for money. Consequently, left to their own devices, they may not call with the consistency required for an effective collection function. Your people need performance standards for monthly cash flow, DSO, delinquency percentages, number of calls and contacts, etc. If you track it, it will get done.

4. Assign Goals and Track Results by Department and Collector

Collections is a “production” job; you need to develop clear goals on cash and delinquency targets for the month and the number of daily calls and contacts (since you need to have all customers touched). Daily reporting should include calls made, promises obtained, disputes resolved, etc. Monthly reporting should roll up the daily results, plus report the financial results – Cash Collected, DSO, Delinquencies, etc. Of course, the department goals must match up against the corporate objectives of your CFO.

5. Credit Application and E-Signatures

Use an automated credit application system incorporating your policies and business rules, and utilize e-signatures to have an officially signed agreement. This will save you countless hours that you can spend collecting. Sign up with one of the several signature applications, and forget faxes. This accelerates and simplifies signing agreements, including settlement agreements, promises to pay, etc.

6. Collection E-Mail Templates and Collection Call Scripts

How much do you want your staff to set their own rules? It depends on an individual’s experience, but generally, the answer is “little to zero.” Do not leave it up to staff to develop their individual communications standards.

This includes collection letters, voice mail messages, and collection scripts. Standard templates meeting best practices should be developed and used by all. We advise skipping written snail-mail letters, except when you must give official notice, certified mail, etc.

7. Make Paying Easy

Offer your smaller customers multiple ways to pay, including e-check, ACH, and credit cards.

8. Contact Data

Your customer contact data should always include the email addresses of your payables contact, controller, and management. If the customer is a small company, you should also have the owner’s cell phone. This information can be added to your new customer credit application. A surprising number of creditors do not have current information on who to contact to resolve collection problems.

9. Systems and Workflow

If you have sizable receivables or many customers or still use spreadsheets, you must consider workflow automation to manage collections and routine tasks. See Carixa for an idea of what a comprehensive, integrated “Software as a Service (SaaS)” system can do for you. You are guaranteed faster collections, lower DSO, fewer delinquencies, and reduced overhead if you deploy powerful collection software. As with all SaaS offerings, it is internet browser-based, so there is no software to install or hardware to purchase.

10. Collection Cycle

Don’t wait as long as your competitors to make the first collection contact; use email to your advantage. Get the money first through early Intervention. If a large invoice will be coming due, it’s worthwhile to call before the due date to solve any problems delaying payment. And don’t be shy about sending “friendly reminders” at even five days.

If you do not receive a response to a call or email, follow up every two or three days until you get a response.
If your debtor is a smaller company, escalate a more serious collection matter by emailing or calling the business owner.
If collection delinquency is serious (regardless of the size of the customer), call an executive-level person (say, CFO). They do not like receiving these calls and will handle the problem.
Do not take them off the hook with unfulfilled promises. Call if the funds were not received the day they agreed to pay.
Expedite all communications. When sending invoice copies or other documents, scan and email them. Email eliminates the usual excuses, and you are assured that it’s reaching the intended party.
Use credit holds when an account is delinquent without a firm promise to pay.
If you are getting nowhere, assign the account to a collection agency and move on to current accounts receivable.

11. Train Your Staff

A bit of training and role-playing can improve your collection effectiveness dramatically. Outside training, help is worth an investment since the benefits will be long-lasting. This includes the Fair Debt Collections Practices Act. Although the FCPA doesn’t usually apply to B2B transactions, always remember to comply with the FDCPA when dealing with consumers. Regardless, commercial collections and consumer customers should always be handled professionally and consistently, which reflects your corporate culture, even the few abusive customers.

12. Using Collection Agencies and Outsource Services

Professional receivables organizations such as Leib Solutions offer First and Third-party collection services and are an essential part of receivables management.

“First-party” is another name for day-one outsourcing of all receivables under the client’s name. Generally, first-party is performed for a low service fee, often per invoice or a low percentage (even under 1% if your volume is high).
“Third-party” is the traditional collection agency service when accounts get old—usually, no collection -no fee.

Uncollected invoices will eventually be written off as bad debts. You should assign them to a qualified collection agency while they are still collectible.

It’s shocking how many companies wait until there is little hope of collection, telephone numbers disconnected, or even bankruptcy before calling a collection agency. This is evidence of a failed collection policy. The old saw that “better to get 75% of something than 100% of nothing” applies here. It’s just common sense.

The first step in improving your company’s cash flow is to take the first step and lay out a plan of attack. If you want some advice, contact us. We will be happy to help in any way we can.

March 20, 2023 Collection Management, Credit Management Post a Comment

9 Best Collection and Accounts Receivable Metrics

Understanding DSO, DDO, and Other Accounts Receivable KPIs

A/R turnover – the credit-to-cash cycle – and working capital are critical to your business, so it is essential to monitor the Key Performance Indicators (KPIs) and other metrics that track your company’s credit, collections, and deduction management health.

In addition, businesses have become more complex, so receivable performance analytics are essential to keep track of the financial health of your receivables.

Here are the key metrics to implement.

1. For Collections, Days Sales Outstanding (DSO) and Best Possible DSO (BPDSO)

Standard DSO is the metric for tracking the effectiveness of Invoice Collection Management. That is, how long it takes to collect payments based on the invoice date, intending to reduce your DSO to as close as possible to your average terms of sale (the “Best Possible DSO” or “Best DSO”). Depending on the industry and seasonality, DSO calculations can get complicated.

However, for a simple example, suppose that your AR totals $1,600,000, and Credit Sales for the last twelve months were $10,200,000. The formula would be:

DSO = Total A/R ÷ Total Credit Sales X 365, and the answer a DSO of 57.2 days.

Best Possible DSO uses only your current (not yet past due) receivables and tells you what your best “on-time payment” turnaround could be.

Best Possible DSO = Current A/R ÷ Total Credit Sales x 365. Using the above numbers, if your Current A/R is $800,000, your Best Possible DSO comes out to 28.

In this case, you have a lot of potential for improvement between the Standard DSO of 57 Days and the Best Possible DSO of 28.

Working towards a DSO that is as close as possible to your Best Possible DSO should be the goal of your department to have a healthy cash flow and ensure your AR management is as efficient as possible.

Once you start calculating the DSO and Best DSO, create monthly targets that “move towards” the Best DSO. You’ll unlikely achieve perfection, so make strides to reduce the metric over 3-6 months.

2. Average Days Delinquent (ADD)

ADD is how many days on average payments are overdue and can be a warning sign of problems. If the number is high, you must determine whether your systems, collections, and invoice processes need improvement. ADD is calculated as the DSO minus your actual (average) terms.

For example, with the hypothetical company above in #1, the ADD would be ten days on September 30. However, say one year later, the ADD is 15 days. That may mean your processes may be falling behind.

Over time, measuring ADD and DSO will show whether you are improving, static, or falling behind.

3. Accounts Receivable Turnover Ratio (ART)

ART measures how effectively you collect your revenues as an annual broad benchmark. It is determined by taking your net credit sales and dividing it by your average accounts receivable balance. When the ratio is higher, you turn A/R into cash more quickly, thus improving your working capital, cash flow, and liquidity.

A low ratio can mean it is time to reconsider credit and collection procedures and add collection automation.

The calculation is ART = net credit sales ÷ average accounts receivable. Using an example of $15,000,000 sales per year ÷ average AR of $2,200,000 = 6.8 ART or, in another case, $15,000,000 sales ÷ average AR of $3,200,000 = 4.7 ART (worse).

4. Collection Effectiveness Index (CEI)

While ART measures how often accounts receivable turn over, CEI measures how effectively you collect all outstanding money in a specific period (usually measured over one year). CEI is calculated as CEI = (beginning A/R + monthly credit sales – ending total A/R) ÷ (all beginning receivables + monthly credit sales – ending current receivables) x 100.

5. Deduction Days Outstanding (DDO)

By dollars: Track Customer Deduction Management results separately from invoice collection, using Deduction Days Outstdanind as the KPI. Similar to how you calculate Days Sales Outstanding (DSO) for invoice collections, add the average daily deductions amounts received during a period (say 90 days), and divide the total outstanding deductions by the average per day. For example, if deductions at the end of a month total $1,000,000 and you receive an average of $25,000 per day, the DDO = 40 days.

By the number of deductions: Another way to think about DDO is to use the number of unresolved deductions since the usual DDO metric often looks better than it is because of the operational focus on large dollar items. Using this method, if deductions at month-end total 6,000 items and you receive an average of 100 deductions daily, the DDO = 60 days.

6. Deduction Effectiveness Index (DEI) New

The A/R department spends so much labor and expense (often 75% of the A/R resources) in deduction management to discover the root causes of errors, find the improper deductions, and ultimately get your money back.

We employ what we named the DEI metric as a critical KPI to track how we are doing. To determine the DEI every month, compare the total deductions vs. those found to be incorrect vs. the collected deductions. Do this by category (returns, shortages, discounts, trade promotions, etc.) and track your company’s progress.

Unfortunately, industry-peer data is not helpful as company processes and policies differ. Hence, the best way to measure your success is to set internal baselines (where you are today) and work to improve from there.

Regular undisputed invoice receivables have an accepted metric of what percentage you should collect (i.e., 100% minus bad debts). For deductions, however, there is no objective metric for the rate you should recover.

Therefore, an excellent way to determine if you are leaving profits on the table is to have unresolved customer deductions post-audited by an outside firm before writing them off.

7. Number of Invoicing Disputes

Mistakes are costly, so you should track, by reason, how many invoices have to be revised or credits issued due to billing or process errors. If the number is trending upward, it could mean that you have systemic problems in order entry, invoicing, or fulfillment, all of which will impact DSO and company profits.

8. Bad Debts to Sales Ratio

Measure bad debts as a percentage of revenues, but always look behind the number if you can and compare the credit losses against sales (i) gained due to more lax credit risk policies or (ii) lost due to overly restrictive corporate credit policies. Most high-risk credit decisions are intentional and logically decided, calculating that the extra revenues will offset potential losses.

9. Percentage of High-Risk Accounts

Doing business with high-risk customers is part of a business strategy. Do you have an excess of depreciating inventory? Do you need extra market penetration in a territory? Many industries are inherently “high-risk,” so the credit and sales managers are aligned and have to do what they can to offset the additional risk via credit instruments and, perhaps, terms or pricing.

Final Thoughts: How do you manage accounts receivable if you don’t measure receivable performance?

Monitoring your accounts receivable metrics and KPIs is essential to running a healthy business. You’ve collected valuable statistics and need to see how you measure up.

First, of course, you’ll need to look at the historical performance within your organization, but that’s not enough. You also need to compare your performance to industry peers. With these comparisons, you can share insights with Finance, Sales, and Marketing.

You must be on top of your game in today’s global, highly competitive economy. This post was written by the consultants at the Smyyth group of companies.