Credit Management October 2018

OPINION
AUTHOR – Chris Sanders FCICM
and processes, but where do you draw the
line? Getting to the nirvana of ‘Best in Class’
comes at a price and as the actions mount
up, and the closer you get to the golden
number, the more expensive it becomes.
In the law of diminishing returns you
have to consider how much more you are
prepared to pay in new systems, training,
process improvements to gain that extra
two percent reduction in debt, one day
DSO reduction or five second faster call
answering.
‘Best Practice’ from a CICMQ perspective
isn’t about numbers or DSO; yes we look
at measurement and dashboards, and we
look at span of control within teams, but
this is looking more at what is appropriate
for the organisation not the results
themselves. We see on LinkedIn regular
questions asking ‘How many customers
should there be per credit controller?’ This
is probably a question finance may ask
but an operational credit manager would
understand it is impossible to answer.
Organisations in the CICM Best Practice
Network have a huge range of DSO from
less than 10 days to greater than 70, and
overdues from zero to 40 percent. One
client was targeting £3m collection from
a ledger with more than £300m in debt,
but once you understand the organisation,
industry and customer base it puts a very
different perspective on things.
MEASURING PERFORMANCE
If benchmarking is only a guide, how do
you know what your KPIs and performance
measures should be? As professional credit
managers we do not look at one thing
and say ‘nailed it’. It isn’t just about DSO,
percentage overdue or queries resolved,
applications processed etc. there is no
‘golden number’ that says you are doing a
great job. We can all reduce DSO but will
we have any customers at the end of it?
Like all things it is a balance. The Credit
Managers we work with understand what
good looks like and it doesn’t come easy.
So instead of striving for what could be an
impossible arbitrary ‘Best in Class’ number,
perhaps it is time we looked internally for
benchmarking and ask ourselves a few
questions:
• What is driving the debt on the sales
ledger?
o There is the normal DSO measure…
then there is the ‘Terms DSO’ in other
words the terms sales offer to customers.
If you can understand this, then apply
this measure. It will make the sales teams
more accountable. The benchmark is of
course the standard payment terms your
organisations offer.
• What is the billing accuracy of your
organisation?
o Last time I did a survey of 100 credit
managers only five percent measured
billing accuracy. This is a key driver for
debt. It is widely accepted that as a guide
that a >0.5 percent error rate (credits as a
percentage of invoices) is reasonable.
• What is the percentage of revenue
(including VAT) that you leave behind each
month? (i.e. What rolls to the next aged
bucket)
o For every organisation this will be
different for various reasons and is as
much to do with your billing cycle as it is
the customers’ payment cycle.
• What are the ‘DSO Drivers’?
o This is one of my all-time favourite
bits of analysis, thanks to long time CICMQ
Accredited ABAgri and Frank Anderson
FCICM. Understanding what proportion of
your DSO is tied up in overdue, disputed,
extended terms, payment plans etc. Start
with what is a DSO day worth in £GBP.
Only when you have asked these
questions, and you have the answers, is
it possible to start to set your internal
benchmarks, which of course will then
be based on your organisation and not
someone else’s. If everything was perfect
what would be the measure? This is only
the starting point. Next you should look
at all of the elements and results that are
under your control and the control of the
credit control team. Only then should you
engage with stakeholders on those items
that are generally outside of your control.
In five easy steps:
1. Decide on the measure you want to
‘benchmark’
2. Understand in detail what are the
drivers for these measures and results
3. Understand what the result would be if
everything was perfect
4. Figure out and fix what you have
influence over
5. Work with stakeholders to drive
improvements in their teams for the
issues you don’t
If you do want to compare yourself to
others…make sure that these comparisons
are only ever used as a guide or direction
of travel and not a destination or you
could be forever chasing the pot at the end
of the rainbow which as we all know is
impossible to find.
For more information please contact
cicmq@cicm.com
Chris Sanders FCICM
is Head of Accreditation – CICMQ.
The Recognised Standard / www.cicm.com / October 2018 / PAGE 23