Metric Benchmarking the Credit and Accounts Receivable Functions

Tune Your Operating Tune Your Operating PerformancePerformance

Determine what to Measure

Create Performance Standards

Measure Performance

Evaluate Performance

CRF Performance Indexing helps you

Understand what to measure

Present a statistical point of reference –

where you are today

Establish and prioritize goals

Manage your resources

Why do we measure Credit and AR performance

• Identify strengths & weaknesses

• Measure progress over time

• Improve policies & procedures

• Improve employee morale

• Focus employee training and support

• Reduce costs

• Perform fair individual & group evaluations

CRF’s Experience

National Summary of Domestic Trade

Receivables quarterly since

1954 & Annual Bad Debt Report

1990 Benchmarking started

2004 New and Improved

CRF Performance Index

151 Metrics on: Financial Performance Customers Deductions Efficiency Outsourcing Cost Analysis Business Practices Organizational Structure / Responsibilities & Systems Information

Why participate in CRF’s benchmarking?

Determine your relative position within a peer group;

Establish a baseline against which to measure your organization – a report card;

Identify the activities required to raise your organization’s level of performance; and

Establish goals and objectives.

CRF’s Role

Act as an information clearing house, ensuring the confidentiality of all participating company’s data.

Provide a communication link for companies in a particular group who want to discuss results and improvement strategies.

Further the education on the benefits of benchmarking for the credit, collection and accounts receivable functions.

What safeguards are in place to validate the data

CRF receives? Data passes through an Automated

Judgmental Review Verifies the raw data submitted and the

results of calculated performance

metrics to ensure they are within normal

ranges.

79 data elements for each company

are analyzed before we produce a

report.

What safeguards are in place to validate the data CRF receives? All SIC codes are validated. Any necessary industry credit group

linkage is made. Validation that every data element

entered or calculated does not represent a new outlier in the database.

If so, we verify

How soon will I receive my report & how much will it cost

me? Usually within a day

PDF reports for speedy email

delivery

And the best part

IF YOU PARTICIPATE,

IT’S FREE

The process begins...

OK, I’m going to do it...but how?

CRF will help Visit

What’s in there?

What does the report look like?

A 41 page statistical report

25 pages of comparative analysis

A reiteration of the data you

submitted

A complete terminology and data

dictionary that details all the

definitions and formulas used in

our benchmarking process

What does the report look like? Executive Summary (sample)

Personnel Costs And Volume Metrics Summary (sample)

What else can CRF do ?

Variable Sorts: tell us what you want

Industry Credit Groups Sales volume Number of Customers Transaction Volume (= Invoices, Checks,

Credit memos & Deductions handled in the year)

Industry (Line Of Business) ERP or primary credit and AR

system Primary customer type (Contractors,

Retailer, Manufacturers, etc)

Financial Performance Metrics

DSO Best Possible DSO Average Days Delinquent Collection Effectiveness Index Percent Current Percent AR Greater Than 60 Days Percent AR Greater Than 180 Days Gross Bad Debt As % Of Sales Bad Debt Recovery As % Of Sales Net Bad Debt As % Of Sales Deductions As % Of AR $ Deductions As % Of AR Items

Customer Metrics

1. Top 10 Customers as % of Sales 2. Top 20 Customers as % of Sales 3. Invoice Size 4. Number of Invoices Per Customer 5. Number of Active Customers per

credit analyst & collector6. Primary Customer Type

Deduction Metrics

1. Number of Deductions Processed Per Deduction Processing Employee

2. Deduction Processing Costs as % of Sales

3. Deduction Turnover

4. Deduction Salary Per Deductions Employee

5. Deductions as % of Sales

6. Deduction Balances Included in AR Portfolio

Efficiency Metrics

Various costs:1. per transaction 2. per employee, 3. per salary for

Credit/Risk, Cash Application, Collections, & Deduction staff

Outsourcing Metrics

Percent of Outsourced Workload by:

1. Credit Risk,2. Cash Application, 3. Collections, 4. Deduction processing, etc.

Cost Analysis Metrics

1. Collection expenses 2. Outside Services 3. Outsourcing 4. Travel 5. Occupancy or Rent 6. IT Systems 7. Depreciation/Amortization 8. Total Cost:

as % of Sales, % of FTE Salary, Per Customer and Per Employee

Business Practices Metrics

1. % of Companies Charging Late Payment Fee

2. % of Companies that Accept Credit Cards

3. % of Companies Allowing Anticipation Payment Discount

4. % of Late Payment Charges Ultimately Collected

5. Annual $ of Credit Card Sales as % of Sales

6. Use of Electronic Invoicing

More Business Practices Metrics

1. Electronic Payments 2. Auto Write-off 3. Use of Auto-cash Systems including

Auto-cash Hit Rates 4. $ Amount Shipped Automatically to

New Customers with No Credit Investigation

5. % of Customers in Highest (Top Third) Risk Category

Organizational Structure & Relationships

1. Reporting Relationships 2. Where Various Functions are

Primarily Performed within the Organization

3. Department Responsibilities

Systems Information

1. AR or ERP Systems Used 2. Use of Bolt-on systems for:

Deduction Management Collection Management

3. Credit Scoring Systems

The CRF Benchmarking report has

151 metrics & data points

Who is the most valuable organization to compare

yourself with?

Your own!

Want the ultimate report card?

We’ve got something for you!

This is great!

Period-to-Period ReportMonth of the reported data 12 12Year of the reported data 2004 2003Industry or Line of Business Services ServicesPrimary SIC 7819 7819SIC Code 2 7812 7822SIC Code 3 7822 7812SIC Code 4 7829 7829SIC Code 5SIC Code 6Are you willing to discuss your results with other CRF members Yes YesYour companys primary source of revenue comes from customers who are ServiceProviders ServiceProvidersYour primary system for managing the A/R cash application J D Edwards J D EdwardsWhere is the Order Processing function primarily performed within your organization Business Unit Business UnitWhere is the Billing function primarily performed within your organization Business Unit Business UnitWhere is the Credit function primarily performed within your organization Headquarters HeadquartersWhere is the Collections function primarily performed within your organization Headquarters HeadquartersWhere is the Customer Payments function primarily performed within your organization Headquarters HeadquartersWhere is the Dispute Resolution function primarily performed within your organization Business Unit Business UnitWhere is the Customer Data Management function primarily performed within your organization Headquarters HeadquartersBeginning Gross Receivables 83,794,557.00 80,753,879.00Annual Credit Sales 459,093,356.00 413,465,000.00Ending Gross Total Receivables 117,470,272.00 84,025,114.00Ending Total A/R of Deductions ONLY 1,780,000.00 2,550,000.00

Submitted DataMonth Of Reported Data 12 12Year Of Reported Data 2004 2003Days Sales Outstanding 93.39 74.18Best Possible DSO 33.17 40.60Average Days Delinquent 60.23 33.58Collection Effectiveness Index 5.70 45.05% Current AR 35.51% 54.73%% of AR over 60 days past due 11.84% 14.16%% of AR over 180 days past due 2.46% 3.83%

Gross Bad Debt as a % of Sales 0.37% 0.54%

Bad Debt Recovery as a % of Sales 0.12% 0.07%

Net Bad Debt 0.25% 0.47%

Deductions as a % of AR Dollars 1.52% 3.03%

Deductions as a % of AR Items 1.31% 0.86%

Accounts Receivable Turnover 3.91 4.92

Top 10 Customers represent this % of Sales 45% 44%

Top 20 Customers represent this % of Sales 52% 50%

Average Invoice Size $1,947.65 $1,947.02

Average Number of Invoices per Customer 68.32 66.36Number of Customers 3,450.00 3,200.00Number of Deductions Per Deduction EmployeeDeduction Cost as a % of SalesDeduction Turnover 1.38 1.00

Results

Over 100 lines of your input and results compared

period to period

Want to liven up your credit group meeting?

CRF’s got what you need!

Industry Statistical Reports

You’ll get Individual member data Unique Group data Broader all industry data Master report for

administrator We will set up a group code for

your specific group data See Sample Report for Groups

Multi-business unit responsibilities?

We’ve got something for you!

We will provide a unique company code for data segregation

Individual business unit data Unique data at the corporate level SIC or all industries data Master report for administrator

displaying the results for each business unit. (looks like Group spreadsheet)

Looking at Current Data

Review of CRF Benchmark Results

Demographics206 companies responded to the survey as of 9/15/09

Line of Business of Participants

Technology, 7%

Industrial, 16%

Consumer Goods, 31%

Services, 6%

Distribution & Wholesale, 11%

Basic Materials, 17%

Healthcare, 5%

Energy, 2%

Telecommunications, 2%

Conglomerate, 3%

Percent of Respondents whose Customers are:

Review of CRF Benchmark Results

Manufacturers19%

Distribution Low Value / High Volume

26%

Distributor High Vaue / Low Volume

13%

Contractors8%

Service Providers7%

Retailers27%

Did you know that across all industries …

The median number of active customers per company is 2,000

In a year, each customer receives 60 invoices

Each one of those invoices averages $3,117

Deductions average 1.8% of AR dollars Deductions make up 4.7% of AR items On average a company turns its

receivables 6.92 times 13% use a deduction bolt-on system 12% use a collections bolt-on system SAP is the most widely used ERP system

Did you know that across all industries …

52% of the companies use credit scoring 61% have developed their own models 48% use credit scoring for credit analysis 25% use it for failure prediction 20% use it for collection prioritization 19% for payment prediction 8% for fraud detection, and 28% for portfolio management

Did you know that across all industries …

The average deduction specialist handles 2,925 deductions per year

On average it costs $14.25 to clear a deduction

86% of the companies include deductions in AR

For each person working on deductions, it costs $47,273 to support them.

Credit risk costs per customer are $67.00 Cash application costs per transaction

are $0.44 Collection costs per customer are $67.00

Did you know that across all industries …

The top 10 customers represent 50% of sales And the top 20 represent 65% of sales It costs $68,824 to support a credit risk

analyst Each credit analyst handles 909 customers Each collector handles 689 customers each &

collect almost 43,550 invoices annually It takes 1 credit analyst to support

$264,000,000 in sales Each customer costs about $13.70 in systems

expense

We’ve just scratched the surface

Participate and receive the full 41 page report

customized for you.

FREE!!Visit CRF’s website click on

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www.crfonline.org