Presented to the BCCA/MFM Nov 15, 2011 Linda J Powell Cablevision Media Sales

Transcription

1 Presented to the BCCA/MFM Nov 15, 2011 Linda J Powell Cablevision Media Sales

2 Improve policies and procedures Improve financial performance Focus employee training and support Increase cash flow Reduce bad debt Increase productivity Perform fair individual and group evaluations

3 Must have a standard Must be compared to some standard or it has no meaning Must be consistent Must provide a benefit Must be communicated

4 There are many ways to measure a collectors effectiveness and efficiency: % Over XX Days Past Due Bad debt percentage CEI Collection Effectiveness Index DSO Days Sales Outstanding ADD Average Days Delinquent Best Possible DSO

5 To convert sales to cash as quickly as possible This makes a company more profitable and gives it the ability to reinvest the cash and generate more sales

6 Measurement of the average number of days a company takes to collect revenue after a sale has been made----- THE AVERAGE COLLECTION PERIOD!!!

7 Low DSO = indicates a company collects its accounts receivable quickly (good idea) High DSO = shows a company is taking longer to collect its accounts receivable

8 It provides a good basic overview of the effectiveness of the account receivable collection policies and staff It is a way for a company to benchmark its own accounts receivable trends It allows a company to compare itself against similar companies and industry-wide DSO results

9 Standard DSO Best Possible DSO Average Days Delinquent ADD

10 Provides an average time in days it takes to convert AR into cash. (Ending AR/Total Credit Sales for period analyzed) X (# of Days in the period that is being analyzed) Ex: Date of Inv Age Bucket Dollars in Bucket (15,908,579/23,910,642)X X 90 = 60 DSO Credit Sales in Period 4/28/11 Current 6,370,865 8,016,360 3/31/11 30 Days 6,390,833 8,433,819 3/4/11 60 Days 3,146,881 7,460,463 Total Open Receivables 15,908,579 23,910,642

11 Utilizes current A/R only, to determine the best possible time it would take to collect on your receivables. (should be close to your terms) (Current Receivables/Total Credit Sales for period) X (# of days in period) (6,370,865/23,910,642) X X 90 = 24 Best Possible DSO

12 Calculates the average days invoices are past due. Standard DSO Best Possible DSO = Average Days Delinquent = 36 Delinquent DSO

13 May be a warning that customers are dissatisfied with your company s service Credit is being extended to customers that are a higher risk and may not be as creditworthy. Company may have an inefficient or overburdened credit and collection department.

14 Fluctuates with revenue Seasonality Measures a company s performance at one point in time Increase in discrepancies This measurement alone can not give you a clear picture of the performance of your A/R

15 Provides valuable insight into the strength and administration of an organization s credit policy Measures quality of collection efforts over time Becoming more widely utilized Closer to 100%, the more effective the collection effort

16 (Beginning Receivables + (credit sales/n) Ending Total Receivables)/Beginning Receivables + (credit Sales/N) Ending Current Receivables) X 100 N = number of months or days

17 Example: Credit A/R Sales Balance Current Totals Jan Feb Mar Totals (10900/3)-6325 x100=(( )-6325)/(( )-3650)x (10900/3)-3650 (3518/6193) X 100 =.5680 X 100 = 56.80% CEI

18 The higher the CEI, the more likely the company is making sound decisions As CEI drops organizations should reexamine their credit policy (may be an indication that they are extending credit to companies that are not credit worthy)

19 CEI better indicator than DSO CEI measures performance over a period of time DSO measures an average collection period at a single point in time CEI compares what was actually collected during a given time period to what was available to be collected DSO can have many variables that change the outcome of the numbers

20 Gives you a measurable indication of the direction your process is headed Can alert you when adjustments need to be made Can assist in analyzing your credit policies and whether the organization is approving clients too leniently or too stringent

21 Expresses the percentage of total receivables that are over xx days past due Good comparative measure of receivables condition Can focus and alert management to unusual increases in A/R requiring prompt attention Can be used to evaluate individuals or groups Simple to calculate, easy to understand Use whatever aging category that suits your needs

22 Example: Total in the over 120 day aging and beyond Total Receivables 100,000 20,000,000 =.005 x 100=.5%

23 Questions you might ask? Are reasons for late payments analyzed and understood? Are late payers monitored more closely? Is some late payment tolerated? Would discounts have an impact on speeding up collections? If credit cards were accepted, would we be paid more quickly?

24 Expresses the percentage of credit sales that were written off to bad debt A measure that works in conjunction with the credit policy (strict or liberal) and organizational goals sales versus profit Can be evaluated at the individual or group level When calculated as net of recoveries, it becomes a contributing factor in measuring the cost of business

25 Example: Total Bad Debt Credit Sales = 625,000 96,000,000 =.0065 x 100 =.65%

26 To find the measurement that best fits your organizational goals and objectives To utilize more than one method of measurement Evaluate your measurement methods yearly not monthly To ALWAYS be consistent Do not use standard DSO one month and than Average Days DSO the next month

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