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Q&A Forum Accounts Receivable Collections Incentives ACCOUNTING (/QUESTIONS?TID=11185)
Cindi Gillette (Vice President/Controller at Telecare Corporation) | Aug 31, 2013 I am looking to get a sense for industry practices around incentivizing AR staff to improve collections. Do you or don't you incentivize AR staff above and beyond their normal pay. If so, what measures to you use to determine the incentive, and how do you continue to raise the bar? As a point of reference, I work in the mental healthcare industry, so receivables are typically due from Medicare, medicaid, insurance, and client self pay.
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(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) | Apr 2, 2011 Cindy Great question, and the answers could be diverse. I found as a finance leader that I could categorize non payment of invoices into 3 categories: 1. You did not deliver what you were supposed to deliver (in terms of services and expectations of value) 2. You did not submit proper paperwork to get paid (i.e. billing data was wrong,or it was incomplete or late or sent to the wrong address) 3. They had no money in the first place.
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What can your AR collections team control? What can they identify as root causes?
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For example: 1. Collections can be proactive on follow up of overdue payments-early detection of issues..are their first calls and follow ups well timed? Do they focus on big amounts first? 2. If collections discover that the reason for delay is bad paperwork or incorrect pricing or incomprehensible bills, do you reward them for identifying solutions? Perhaps the root cause is a billing form/invoice that is too hard to understand and that is a pricing issue or a billing issue that is upstream. Often collection problems are to do with factors outside the control of collections staff-after all, if customers pay on time, there is no need to "fix a problem." Regards Len
Sarah Jackson (Associate Editor, Proformative) | Jan 23, 2014 Cindi, If you're interested in improving accounts receivable and collections, you might want to get a free copy of this white paper here at Proformative: "Improving Working Capital Management and Cash Flow Intelligence" https://www.proformative.com/whitepapers/improving-working-capitalmanagement-cash-flow-intelligence (https://www.proformative.com/whitepapers/improving-working-capitalmanagement-cash-flow-intelligence?pf_source=sj-accounts-receivablecollections) Enjoy! Best... Sarah
Anonymous (CFO/Board Advisor) | Sep 2, 2014 Len, Great points, and these agree with my experience. In addition to these I would add: 4. Customer Granted Extended Terms in order to meet end of month/quarter/year revenue goals. A DSO goal would be of little use as this is out of A/R's control. The best incentive I have ever used, and it had the full backing of the CEO, is to pay Sales Commissions and Sales Management Bonuses on collections. This makes the Sales Team a partner in the collection process, not an adversary. Lastly, the other thing I do is give each A/R collector the ability to do something special for their A/P counter part at the Customer; e.g. flowers on birthday, dinner coupon on anniversary, etc. The relationship between Seller A/R and Buyer A/P departments aren't that dissimilar from the relationship of Seller's Sales Team and Buyer's Purchasing Department. In the end I have found it is these relationships that actually increased (or decreased) the speed of collections - provided the Customer isn't part of Category 3 above: no money. I judge my collectors on their relationships with Customers, more than collections.
Michael Topf (CFO, in-between) | Apr 2, 2011 Cindy, I have found the best incentive to be DSO reduction. Set the bar at current DSO and give incentives at DSO reduction levels ( example-0.5 days-3.0)-incentive increases with larger reduction.
Topic Expert
Wayne Spivak (President & CFO, SBAConsulting.com) | Apr 3, 2011 Incentives can be a team approach, empowerment of the fine job that the person or team is doing in reducing A/R collection days; comparison with industry norms and how well they are doing. In these times of tight finances, not only is collection of A/R in a timely fashion important, but so is all the dollars collected. Wayne Spivak SBA * Consulting LTD
David Fittz (Corporate Controller, PJ Trailers) | Apr 4, 2011 I have used AR>60 days. I have multiple collections personnel and give individual incentive for thier assigned accounts and if total AR