KPI’s and Value

Proposition
TRMG FALL CONFERENCE – OCTOBER 24, 2106
Opportunity for Value Proposition

 Credit management overall view that it is a downstream department

 General lack of respect for credit and AR management
 Turnover in position
 Determining the right audience
 A meaningful measure fills a need and meets a specific objective…if it
doesn’t accomplish a purpose don’t use it
Obstacles to KPI acceptance

 Don’t know enough about the company’s finance needs to contribute

beyond A/R
 Don’t cultivate relationships with CFO/Controller/Sales Management
 Don’t take opportunities to expand important skill sets besides credit and
collections
 Is there a “right” measure?
The Value Proposition

 Measure as much as you can

 Document important contributions – Toot your horn
 Ask for more opportunities for incentives – performance laden to show
impact
 Improve financial performance – reduce bad debt expense and
accruals, increase cash flow, increase productivity
How to Show Value

 Cash flow forecasting

 Aging Changes
 Risk Warnings
 Qualitative and Quantitative depiction of cash delays
 Dashboards
 Customer intelligence (customer practices, management/ownership
movement and linkages, pay patterns)
 Cash Flow Forecasting

Measure cash
Outstanding 31-60 61-90 91-120 121-180 181-240
Grand Total Balance Del Cash Current 1-30 Days Days Days Days Days Days Over 240 Days
collections
AUGUST 2016 CASH PROJECTION production
by month
July ending AR 77,865,408 7,060,848 56,614,538 14,190,023 3,207,895 1,366,912 1,075,066 774,948 61,450 574,577 and by aging
bucket.
Affords ability
77,865,408 7,060,848 56,614,538 14,190,023 3,207,895 1,366,912 1,075,066 774,948 61,450 574,577
to measure
Revised Ending AR

MoM
Revised August performance
Projection 64,458,822 3,923,937 48,696,734 11,838,151 2,356,060 791,512 528,464 293,148 37,442 170,805
by portfolio
segmentation

Actual August
Collections 60,782,774 3,024,773 45,282,850 12,475,151 1,599,659 569,096 455,210 272,052 73,397 105,358
Actual %
Projection 94% 77% 93% 105% 68% 72% 86% 93% 196% 61%
 Cash Collection Productivity

Sum Cash Collections vs Sum of Sum of Collections by Cash by HC is a

Month Revenue Collected Sales Collectors Collector
good indicator to
16-Jan 57,927,990.21 71,284,504.83 123% 22 3,325,032 support either
increasing or
16-Feb 62,965,522.98 56,383,720.15 90% 22 2,642,942
decreasing HC in a
16-Mar 68,689,049.31 72,722,268.14 106% 23 3,403,635 department…this
can be driven down
16-Apr 65,218,677.10 63,548,863.42 97% 23 3,011,566
to the collector level
16-May 64,910,413.20 66,579,088.33 103% 23 2,819,914 for performance
reviews
16-Jun 70,247,030.53 65,948,467.28 94% 25 2,920,415

16-Jul 64,896,656.08 63,083,714.96 97% 25 3,005,188

 Aging Changes

Team
Unique Portfolio
Month Sales Inv Count Open Amount Current Days 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-180 Days 181-240 Days 240+ DSO % Current 30 Days Over 30 Days

Aug-15 $ 56,091,288 81,745 $ 85,731,205 $ 54,693,189 $ 16,111,161 $ 5,979,024 $ 1,979,502 $ 1,448,770 $ 2,172,592 $ 949,356 $ 2,397,612 42 63.80% 17.41% 14,926,855.64

Sep-15 $ 57,297,206 75,904 $ 86,636,703 $ 56,293,772 $ 15,632,002 $ 5,922,593 $ 3,218,485 $ 1,292,942 $ 1,765,644 $ 1,074,314 $ 1,436,951 46 64.98% 16.98% 14,710,929.29

Oct-15 $ 53,767,745 70,822 $ 79,584,945 $ 52,370,477 $ 13,667,857 $ 5,226,945 $ 3,001,828 $ 1,311,637 $ 1,569,080 $ 1,117,454 $ 1,319,667 44 65.80% 17.02% 13,546,611.11

Nov-15 $ 52,096,790 66,336 $ 77,724,554 $ 50,403,029 $ 14,688,647 $ 4,906,213 $ 3,104,157 $ 1,234,657 $ 1,491,435 $ 792,887 $ 1,103,528 44 64.85% 16.25% 12,632,877.43

Dec-15 $ 85,920,953 74,780 $ 107,514,710 $ 82,910,648 $ 11,941,171 $ 4,866,248 $ 3,010,990 $ 1,848,379 $ 1,332,860 $ 729,738 $ 874,675 42 77.12% 11.78% 12,662,890.70

Jan-16 $ 57,786,769 65,276 $ 89,032,181 $ 64,025,789 $ 13,000,397 $ 4,205,960 $ 2,774,321 $ 1,893,177 $ 1,906,496 $ 670,023 $ 556,017 41 71.91% 13.49% 12,005,993.82

Feb-16 $ 62,828,771 71,380 $ 96,015,919 $ 66,195,649 $ 16,973,194 $ 6,309,746 $ 2,230,193 $ 1,270,040 $ 2,171,135 $ 446,040 $ 419,922 47 68.94% 13.38% 12,847,076.16

Mar-16 $ 67,444,061 72,010 $ 88,957,968 $ 68,613,229 $ 11,619,467 $ 3,569,309 $ 1,807,459 $ 747,122 $ 1,469,623 $ 730,571 $ 401,189 40 77.13% 9.81% 8,725,272.38

Apr-16 $ 61,882,663 73,793 $ 86,662,893 $ 68,821,265 $ 10,883,703 $ 2,466,867 $ 1,396,550 $ 721,239 $ 849,200 $ 1,167,347 $ 356,723 41 79.41% 8.03% 6,957,924.89

May-16 $ 63,783,714 73,753 $ 85,859,718 $ 65,497,504 $ 13,040,353 $ 3,698,441 $ 862,670 $ 925,594 $ 689,041 $ 614,301 $ 531,815 41 76.28% 9% 7,321,861.34

Jun-16 $ 68,309,673 76,374 $ 87,485,896 $ 68,724,557 $ 10,972,200 $ 3,529,382 $ 2,073,119 $ 602,098 $ 639,597 $ 274,661 $ 670,282 39 78.56% 8.90% 7,789,138.80

Jul-16 $ 63,900,817 77,379 $ 88,980,908 $ 67,762,564 $ 14,156,211 $ 3,213,691 $ 1,370,800 $ 1,063,171 $ 754,597 $ 82,944 $ 576,929 41 76.15% 7.94% 7,062,133.21

Aug-16 $ 71,160,289 77,709 $ 90,375,446 $ 69,713,098 $ 13,584,313 $ 2,976,289 $ 1,767,337 $ 789,287 $ 831,954 $ 136,555 $ 576,615 39 77.14% 7.83% 7,078,035.51
 Aging Changes – Track AR
movements
Customer A Trending
analysis can
Month Sales Inv Open Current Days 1-30
Unique Portfolio
Days 31-60 Days 61-90 Days 91- Days 121- Days 181- Days 240+ DSO % Current 30 Days Over 30 Days lead to
Count Amount 120 180 240
further
investigation
Dec-15 $ 2,445,837 3,209 $ 2,664,909 $ 1,986,173 $ 270,935 $ 129,439 $ 190,635 $ 26,443 $ 18,899 $ 20,437 $ 21,949 33 74.53% 15.3% 407,800.65
of root
cause
Jan-16 $ 1,427,002 2,499 $ 1,921,567 $ 1,297,775 $ 397,519 $ 94,226 $ 61,071 $ 56,790 $ 17,552 $ 12,368 $ (15,733) 36 67.54% 11.8% 226,273.21
analysis

Feb-16 $ 1,403,385 2,217 $ 1,671,851 $ 1,245,884 $ 298,327 $ 51,612 $ 21,111 $ 47,099 $ 18,862 $ 7,900 $ (18,944) 36 74.52% 7.6% 127,640.31

Mar-16 $ 1,377,130 1,807 $ 1,387,925 $ 1,175,334 $ 110,122 $ 30,951 $ 16,869 $ 10,552 $ 43,297 $ 7,904 $ (7,105) 30 84.68% 7.4% 102,469.03

Apr-16 $ 2,469,165 2,517 $ 2,682,484 $ 2,457,946 $ 130,538 $ 31,542 $ 15,276 $ 6,425 $ 31,278 $ 9,949 $ (468) 35 91.63% 3.5% 94,000.92

May-16 $ 2,293,931 3,129 $ 3,261,168 $ 2,511,705 $ 610,048 $ 82,892 $ 24,104 $ 9,050 $ 9,770 $ 14,101 $ (501) 42 77.02% 4.3% 139,415.72
 High Risk Alerts

If you have the ability to risk profile your portfolio you could report on
predictive statistics that would support a High Risk Watch Account

Risk of DSO last DSO 60

Customer default Total A/R Past due month days Dso 12 months Comments

XYZ Payment slowing; previous

Manufacturing Very high $ 582,000 $ 62,000 62 58 47 bankruptcy

ABC Signs High $ 88,000 $ 44,000 79 92 97 Cash dropping, state tax liens
Risk Distribution

 Risk profile your

portfolio
 Cater collection
activity accordingly
 Develop sales
prospects from the
Low and Medium
profiles
 Allows for risk pricing
for Higher risk profiles
 High Risk Accounts – Payment Plans

Troubled AR Customer
Effective 4/24/2015 Payment plan trackers are
useful to keep track of
Amount Payment Date Payment Recvd these arrangements. You
$363 6/30/2016 Y
will be able to report out
$363 7/31/2016 Y
$363 8/30/2016 N
and manage those who
$363 9/30/2016 default. It becomes useful
$363 10/31/2016 statistics to report out to
$363 11/30/2016
$363 12/31/2016
sales/operations the
$363 1/30/2017 success rates of accepting
$363 2/28/2017 payment plans
$363 3/31/2017
$363 4/30/2017
$363 5/31/2017

$4,356 Total Amount Due

 Drivers of Cash Delays

Billing Compliance Measurements

Each disputed
Month Value of Invoices # of Invoices # Issues % Compliant invoice creates a
July 14,569,120 2,852 374 87% cash delay. The
August 13,252,565 2,657 399 85% ability to capture
details to quantify
and qualify current
state and
Billing Compliance by Issue July August improvement
Pricing 150 137 opportunities to share
Lack of Documents 22 26 with operations and
EDI 51 44 billing departments
Missing Data 176 167
 Dashboards

Recent Accounts
Past Due
Account Number Customer Name Risk Rating Outstandings Past Due %

SYS9004 Tetris LLC High 16,257 16,257 100%

SYS9005 DK MGM Med 37,555 13,258 35%

SYS9006 Hosting Test Med 3,000 1,000 33%
SYS9007 ZIP DE DO Low 4,997 - 0%

SYS9008 Zzschimmer & Sons Med 66,125 22,016 33%

SYS9009 Zoltag High 125,000 58,022 46%
 Tools to Build and Maintain
Dashboards
Inputs
Sample Outputs

Open
Invoices
Mapped by
Division
Invoices

Open Invoices
Amount by Top n% of
ERP Data Sets Customers

Open Invoices
Geographic Data • Merged data sets • Drilldown capabilities Requiring
• Auto-updates with new with mouse-clicks Signatures by
data • On-the-fly custom Count and Dollar
• Customizable visuals filtering
DSO or CEI

 CEI – a measurement of the ability of the collections staff to collect. The

index compares the amount that was collected in a given time period to
the amount of receivables that were available for collection in that time
period
 A result near 100% indicates that the collection department is effective.
 High CEI numbers can be achieved by focusing on the largest receivables
whereby overlooking a number of smaller receivables that are very
overdue.
 CEI, like DSO, is period driven but can concentrate on shorter periods of
duration. DSO calculations tend to be more accurate the larger the
period of evaluation.
 CEI Calculation

Beginning Receivables + Monthly Credit Sales – Ending receivables balance

x 100
Beginning Receivables + Monthly Credit Sales – Ending current balance

2,682,484 + 2,293,931 - 3,261,168 $ 1,715,246

70%
2,682,484 + 2,293,931 - 2,511,705 $ 2,464,710

 The formula is to combine beginning receivables for the measurement period

with the credit sales for that period, less the amount of ending receivables and
then divide this number by the sum of the beginning receivables for the
measurement period and then the credit sales for that period, less the amount
of ending current receivables.
 DSO vs BPDSO (best possible)

Current Receivables x Number of Days in Period Analyzed

Credit Sales for Period Analyzed
Jan Feb

Days 31 28
AR 84,642 86,582
Not Due AR 67,360 68,639
Sales 51,938 50,718

BPDSO 38.7

 The formula is to take current receivables (the amount of receivables that are
within your credit terms i.e. not past due) as a measure of the sales for the
period
 DSO vs BPDSO (best possible)

20XX

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Days 31 28 30 30 31 30 30 31 30 31 30 31
AR 84,642 86,582 85,225 87,461 87,081 85,858 86,161 84,827 86,823
Not Due AR 67,360 68,639 67,988 68,309 69,211 67,219 67,736 67,568 68,170
Sales 51,938 50,718 53,945 55,581 54,031 52,975 53,729 53,890 54,789
Actual DSO 49.4 47.3 47.7 48.8 48.9 48.4 48.3 48.4 #N/A #N/A #N/A
BPDSO 38.7 37.8 37.1 39.2 38.2 37.9 38.6 37.7 #N/A #N/A #N/A

Target DSO 50.0 49.0 48.0 47.0 46.0 45.0 44.0 43.0 42.0 41.0 41.0 40.0

Cash Target 49,458 53,978 54,656 59,671 60,937 61,136 64,669 63,966 68,560 0 0

 An example of a way to demonstrate DSO vs BPDSO

 DSO vs BPDSO (best possible)

 An example of a way to demonstrate DSO vs BPDSO