Receivable/Accounts - Information for Credit and Collection Issues

Monday, July 22, 2013

Credit Key Performance Indicators (KPIs)

 

In the world of credit management, often your receivables team have many key performance indicators (KPIs) to choose from, whether they are direct or indirect measurements of recovery on receivables.  You can measure as simple or direct subjects, such as gross revenue generated, or indirect behaviours such as call metrics.  These measurements can be measured for manual or predictive calling, for inbound or outbound calls handled.

The whole point of KPIs, in my opinion, are to measure and refine your recovery process.  Every company and their A/R team should have their own unique measurements installed.


Some KPIs to Consider

There are a number of direct measurements that directly evaluate recoveries, or prevention of losses.  Some suggestions to measure are:

Number of files worked each day -- you can measure this per staff member, or for a team or predictive dialer as a whole.  The point of this measurement is gross effort -- without attempting to make calls, and reach consumers or businesses, you cannot generate communication and create revenue flow.

Right party contacts generated -- from gross calls made, the only effort that can meaningfully generate recoveries are right party contacts (a call attempt that actually reaches a customer).

Conversion of right party contacts -- from your right party contacts, conversion of these communications into revenue can be measured, whether it is a direct payment created, or a grouping of a call status (promise payment, refusals to pay, complaints generated, etc), this can tell a lot about your team's effectiveness once the customer is reached.

Liquidation -- of course, ultimately the empirical measurement of receivables are the recovery of those accounts.  With varying balances owed, what matters is liquidation, or the percentage of gross funds recovered.  Whatever isn't recovered will become bad debt write-offs or lost revenues.

In addition to these direct KPIs, there are several measurements that are symptomatic of an effective team and efficient collection process.  In my opinion, too many credit departments and collection agencies become too fixated on these metrics, so I certainly advise caution when using these excessively.

Payment Evaluation - as a measurement of efficiency, you can break down recoveries into patterns, such as payments in full versus partial payments, or current versus post-dated payments, or by payment methods such as immediate recoveries via telephone or website against delayed payments such as cheques mailed in.

Call Times -- this is the one measurement I think call centres and credit departments fixate on to the detriment of efficiency.  Calls need to be made, and an ideal call should be brief and result in payment, but ultimately the primary KPIs listed above I feel should take precedent over penalizing staff for calls over three minutes, or how many washroom breaks a staff member takes.  Efficient call behaviour should be encouraged without taking away your staff's dignity and ability to work intelligently.

Escalated Calls -- whether this is measured as calls escalated to a supervisor, a lost customer, or a complaint filed with the better business bureau or Ministry of Consumer Affairs, these kind of missteps harm your company's brand reputation, and cause extra work for others in your company to diffuse the situation.  Someone on your team that is efficient in recoveries, but at the cost of public backlash may not be an asset to your company, and measuring escalations can reflect that.

Quality Control and Testing -- not every customer will remit payment, but what is important are the methods used and the quality of every call, regardless of the result.  If a member of your receivables team says and does absolutely everything correctly, and still the customer does not pay, this should show positively on that staff member's report.  As well, knowledge of company policies, collection laws, or privacy legislation should be measured periodically to proactively ensure your staff are knowledgeable about their role.


Intelligent Measurement

Most companies measure KPIs, but few explain *why* they measure certain KPIs, or hold on to certain metric measurements that have become outdated or irrelevant.  It does not hurt to review your measurement reports with the staff, and allow your dashboards or performance reviews to evolve with your company -- when you see a lack of efficiency, measure it to reduce the shortfall, rather than allow your measurements to dictate and stagnate your process.

As well, allow your team input to your measurements -- often management (who are  the authors of the performance reports) become distanced from the core recovery process, and their reporting of their staff reflects that.  You can keep your measurements in tune with what the ultimate goals are -- recovering funds, by seeking the input of your department.

Lastly, KPIs are a tool to improve performance, not punitively control your staff.  Find ways to measure positive or exceptional behaviour by your staff.  This could be a lack of absenteeism, positive online Google+ reviews, feedback from customers, the amount of time a staff member stays past their regular working hours to finish a call, special projects or initiatives that your employees undertake above and beyond their job description, behaviour that improves company morale or reflects positively on the brand's image.  These are all important ways to engage with your staff and grow your company, rather than allowing your receivables department to be a soulless call centre.

For further reading:

http://www.acainternational.org/news-key-performance-indicators-28190.aspx

 
Conclusion

As always, I'm interested in sharing measurement tools and reports, and I'm happy to discuss what I have found works well.  I can also recommend a number of software platforms or services that can measure efficiencies.  If you are a credit manager, fellow collections colleague, or an ambitious receivables staff member, feel free to reach out to me and start a discussion.  I can be reached directly at 226-946-1730.

Regards,
 
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730
bwettlaufer@kingstondc.com