While days sales outstanding and average days delinquent are critical to measuring the health of your credit collections efforts, there are other accounts receivable metrics which are just as important that many companies overlook, customer interaction metrics.
Think about it this way, you track customer movements through marketing and sales with detailed accounts of every communication or interaction you have with them, but then once the sale is made all of that detailed documentation stops. What about accounts receivable? How do you know your customers are happy or that your collectors are communicating with them enough?
Knowing how quickly you are getting paid, how much debt you are writing off, cash flow, and other financial metrics are all crucial, but going beyond the surface and looking at your customer relations is just as important, possibly even more important. By knowing how quickly your collectors are responding to customer questions, how many invoice mistakes are made, and overall customer satisfaction can be tremendously helpful as you work to improve your internal processes to make sure your accounts receivable department is working like the well-oiled machine you need it to be. Be sure to measure the following accounts receivable metrics:
- Invoice Accuracy: In a recent article on CFO.com, 49% of financial executives cited ‘invalid or missing purchase order information’ as a reason for customers not paying their bills and there are countless other mistakes made on invoices that can result to delayed or denied payment. Incorrect invoice information complicates matters and the more complications there are, the harder it is for customers to process payment and your invoice will get moved to the bottom of the stack. So how many late payments do you have due to invoice mistakes?
- Staff Response Time:If you are sending out invoices with mistakes, many of your customers are probably trying to get a hold of you to figure out what is going on or they might have other questions they need to have answered before they can process payment. How long does it take your collectors to get back to them? The faster their questions are answered, the faster you will get paid.
- Invoice Delivery: How quickly are customers getting their invoices? According to the CFO.com article mentioned above, 11% of respondents claimed that they never received the invoice! Another reason for delayed payment is that customers do not get the invoice soon enough to process an on-time payment. If you only send invoices out every two weeks and you extend NET 30 terms to your customers, they may receive the invoice with only one to two weeks before the due date depending on when the mail is received, who has to review and approve the invoice, and who has to process the payment. It’s critical that you send invoices to customers more frequently to ensure that you’ve done your part to ensure that they have adequate time to pay you before the due date. How many days go by between the sale, invoice creation, and invoice delivery in your company? How often are you invoicing?
- Overall Customer Satisfaction: Just because your customer paid you for the product or service you provided does not mean they are happy, they were just fulfilling their side of your agreement. If there were invoice mistakes, if they could not get in contact with your collectors, if the invoice was late, or if there were other problems in the payment process, they are probably not too thrilled. if Marketing is the first contact your customers have with your company, then accounts receivable is the last and you want to make sure they walk away happy so they will buy from you again. Ask them for feedback and make sure you take their comments to heart.
By tracking the above accounts receivable metrics in addition to your financial measures, you can provide your customers with the high quality customer service that they deserve which will keep them coming back to you for future purchases. Be sure to let your collection team know, in a nonthreatening way, that you are tracking this information and they will be sure to step up their performance. Set goals and make the entire team aware of them as well as their progress toward achieving those goals. You may even want to consider offering incentives to the team to drive faster results.
There are many other things you can do and small changes you can make to improve your processes and eliminate disputes. For more advice, download our free guide, “Dispute Management Strategies for Business Credit Professionals”