In the credit and collections department, there hasn’t been much change over the years in the usual key performance indicators that many departments are using. Many departments are calculating DSO and bad debt percentage, but these indicators usually don’t give a full picture of what is going on in the credit and collections department.
If you want to add more value to your department and impress executives with a clear plan on what you will do next to make improvements, there are a few collections KPIs you can keep on your radar. Below are the 4 we find to be the most meaningful.
1. COLLECTION PERCENTAGE
This collection KPI can be calculated in two cases; generally to find how the entire collection department did that month based on the amount collected vs. the amount outstanding or finding this percentage for each individual collector. If all your customers have the same payment terms, it is easy to calculate the collection percentage by taking the ending A/R balance of the prior month and finding how much of that was collected in the current month. If your customers do not have the same payment terms, you can use an automated system to create an aging that looks at the due date of each invoice.
2. PERCENTAGE OF A/R UNDER 60 DAYS
This collection KPI should be measured over each individual collector. A way to make measuring this KPI fun, is to offer a prize to the collector who can consistently keep the most accounts under 60 days past due. This is easy to measure, by simply finding the percentage of accounts paid under 60 days of the total amount due.
3. ACTIVITY MEASUREMENTS
This collection KPI is easiest to measure by using an automated system that keeps a tally of all the activities a particular collector makes over the course of a month. By keeping track of collector activities, it will become clear which methods are the most successful in collecting the most cash. If a collector tends to make mostly phone calls to customers and they have the most success collecting, you will want to encourage all collectors to make more phone calls and create a new policy regarding when and how often you should be making phone calls.
4. PAYMENT TYPES
There are many different payment types available to customers now. This could be a check, a credit card or ACH. Each different payment method creates more or less work for the collector and costs more or less to process. Keep track of how much it costs per payment type to process, including credit card fees. Once you find out which is the cheapest and quickest for you to process, encourage your customers to use this payment type. You will most likely find it is easiest and cheapest to process ACH, especially when you offer a self-service payment portal.