For most businesses, accounts receivable (AR) has been developed and standardized to ensure one thing: that payments are received on time. Outstanding receivables are not only the bane of most accounting teams, they can be used to gauge their productivity (or lack thereof).
What Productivity Means for Your Collections Team
Productivity is a major benchmark for most organizations because it allows them to measure output per hour worked. When it comes to accounts receivable, productivity directly impacts the dollars and cents of an organization. A careful analysis of most back-office functions reveals that productivity is sorely lacking when it comes to how frequently your company gets paid.
Most AR teams rely on Days Sales Outstanding (“DSO”) to measure department performance. DSO is nothing but an outcome of activities. For example, consider two businesses in the defense industry – Wayne Enterprise and Stark Industries. Both businesses have many similarities: they each generate $50 million in credit sales, have the same DSO of 50 days and operate in a very similar market. They are also well ahead of the industry DSO average, which is 55 days. These metrics might look great at first glance, but a closer look at the numbers reveals startling differences.
What if we told you that Wayne Enterprise has three times as many collectors as Stark Industries? Does that change your impression of Wayne Enterprise? What if you also learned that Stark Industries has just one collector who uses automated tools to help them do the job of many collectors? In a highly competitive environment, productivity can often make or break any organization.
Technology and Productivity Go Hand-in-Hand
In the digital economy, successful businesses don’t throw additional human resources at a problem in hopes of finding a solution. Instead, they use technology to streamline operations, reduce costs and boost productivity. This is no different when it comes to AR and collections. That’s why the Credit Research Foundation (CRF) uses investment in technology as an essential input when defining productivity.
The CRF has developed a formula for assessing productivity based on inputs (i.e. sales, AR staff, investment in technology), and outputs (i.e. ending balance of AR).
CRF’s formula is illustrated below in the Collection Productivity Calculator:
We've listed the inputs, outputs and formulas to clarify the calculations.
|1||Collection Productivity Calculator||Year 1||Year 2|
|2||Sales||Enter Value||Enter Value|
|3||AR Staff Headcount||Enter Value||Enter Value|
|4||Year End AR Balance||Enter Value||Enter Value|
|5||Sales Per AR Employee||=B2/B3||=C2/C3|
|6||AR Per Employee||=B4/B3||=C4/C3|
|7||% Change in Sales Per AR Employee||-||=(C5-B5)/B5|
|8||% Change in AR Per Employee||-||=(C6-B6)/B6|
|9||Investment in Technology as a % of AR Payroll||-||Enter Value|
|10||Growth or (Decline) in Collection Productivity||-||=C7-(C9*C8)|
YayPay Collection Productivity Calculator
Automation Cuts Down AR Backlog and Boosts Cash Flow
In virtually every industry and work function, investment in technology has resulted in higher productivity, lower costs and ultimately better bottom-line results. The same outcome is also observed in collections.
Take for example the most time-intensive task for any AR team: following up on invoices and staying on top of the collections process. For any given mid-sized business, this task literally involves hundreds of hours and thousands of emails, not to mention manually coordinating and escalating customer queries internally and keeping track of multiple workflows. The bigger your business grows, the bigger the problem becomes.
Suffice it to say, most AR teams are inundated with manual requests and heavy workloads. Most are thinly staffed and very few have the time to focus on what really matters – bringing cash into the business in a timely manner while maintaining customer relationships.
Talk to YayPay
The need for accounts AR tools is clear. YayPay is an intelligent AR automation platform that enables businesses to collect more money faster, simplify customer management, and improve cash forecasting. It could be your ticket to greater AR productivity and better bottom-line results. Click here to start calculating your savings.