CHAPTER 4: CREDIT MANAGEMENT
Here is a short list of metrics for credit management:
DSO—reflects the number of invoices paid in full and on time Uncollectible—bad debt percentage Cycle time from application to open terms Number of applications reviewed Number of customers with open account vs. credit card, vs. CIA Number of customers on cash in advance (convert to credit card)
Number of credit holds Number of EFT payers Number of customers that accept e-invoicing
4.15 Best Practice Summary
The following is a list of proven credit department best practices. By going to credit group discussions, attending conferences, and joining networks you can learn what other companies are doing in your field.
Proven Credit Best Practices:
Develop a questionnaire for the sales reps to fill out for a potential new customer in order to acquire credit information (this will reduce the research cycle time). Policies and Procedures—A good DSO depends on tight policies and procedures. When costing out your products, you need to include a certain amount of bad debt in the cost of doing business (invoices written off, bankruptcies, etc.). Even if the company is not a retail store, it may receive a bad check or a credit card payment that doesn’t go through. In retail, cash could be counterfeit. Cross-training and/or work-shadowing with other roles/departments: { Accounts payable: This can lead to understanding how to create an invoice that will get paid and reveal places to tighten controls to deter potential fraud. { Sales reps: Visit customers with them and have them spend time in the Credit Department. { Sales Rep, Credit Manager, Customer Master file, Order Processing, Billing, Cash Application, Deductions, and Collections: The goal is to develop a complete end-to-end understanding of the order-to-cash cycle. Electronic funds Transfer (EFT) lowers bank and internal processing cost and often speeds payment—customers prefer to pay electronically and will pay faster than if by check. { Phone campaign to convert check payments to EFT. Accept credit card payments—Provides a tool for accepting sales from new or credit- risky customers; easier than CIA or COD; can also be an effective collections tool. { Phone campaign to convert existing cash-in-advance or COD to a credit card.
73
THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
Made with FlippingBook - Online catalogs