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Collection efficiency calculation

Collection efficiency Although multiple indicators are used to assess the performance of the collection officers, none is truly essential.

Overdue %, DSO (Days Sales Outstanding), aging balance and others provide advanced visibility to specialists but are not always very relevant to analyze the quality of work done.

Indeed, these indicators sometimes vary strongly depending on elements external to what is done daily by the collector.

The DSO, for example, is impacted by the variations in turnover and includes in its calculation methods imperfections that distance it from the analysis of operational performance. It is above all a high-level indicator of financial and working capital analysis. Read the article the enigmas of the DSO.

The overdue rate can change drastically from one day to the other depending on the amounts of bills coming to maturity. Are its sudden variations representative of the quality of the work of a collector? Certainly not.

The aging balance provides a more detailed and qualitative view, but it only highlights what is not recovered and ignores the sums collected. It can push to see the glass half empty because the full part is absent.
Sometimes intermediate metrics are taken into account: number of recovery actions carried out, qualification rate of items. This information is interesting but focuses on the means to achieve a result and not the result itself. They can not be defined as the main objective.
So what indicator should be taken into account to evaluate, motivate and challenge the collection officer?

An indicator for setting SMART goals

The objective is to be able to assess the situation and set a goal to improve performance. For this, it must be SMART. That means:
  • Specific and simple → it is directly related to the work of the person and is representative of what is done and done well. It is simple to understand by all actors.

  • Measurable → it must be quantifiable and measurable. It makes sense.

  • Achievable → it must be accepted and action oriented. The product of the work performed must be immediately retranscribed in the indicator. « I'm doing well my job, my indicator is improving ».

  • Realistic → the goal set must be attainable and therefore motivating. The dosage is important because it will have a negative effect if it is too easy or too difficult to achieve.

  • Time-related → the objective must be clearly defined in time with precise terms. For example, « by the end of the month », not « as quickly as possible ».
The performance / goal indicator pair makes sense when it complies with the above principles and is positively defined.

Motivate your debt collectors with the most relevant KPI (Key Performance Indicator)!

The collection efficiency ratet is completely SMART: it is fully understandable because it is about the heart of the job. It is concrete and measurable from day to day. It is positive because it progresses over the month toward the goal.

It takes into account:

  1. total collectable amount on the current month: overdue invoices as of 1st day of the month plus all invoices that will come due in the coming month. This is the total amount to recover by the end of the month.

  2. the amount still to be recovered by the end of the month the day the indicator is calculated (ideally every day).
For example, if the total amount to be recovered at the beginning of the month is € 1,123,000 (€ 313,000 late and € 810,000 due during the month), and the 15th of the month still to be recovered € 581,000 the collection efficiency rate is 48.3%. Calculation: (1,123,000 - 581,000) / 1,123,000.
collection efficiency global
The first day of the month, the rate is 0% or close to 0%, then it progresses over time with the aim of reaching 100% at the end of the period.
This indicator is extremely stimulating for collection officers as it is very concrete.

It can be calculated globally, on a portfolio, per customer, etc. Thus, it makes it possible to identify the most important issues upstream and helps to prioritize actions accordingly.

Detail by customer

collection efficiency by customer
To fully exploit this indicator, it is necessary to model it in a tool. In My DSO Manager, the recovery rate is calculated in real time over a multitude of perimeters (overall, by portfolio, by activity, by client, etc.).
It allows the manager as well as his manager to always know what has been recovered, what has not been and that will have to be by the end of the month.

It becomes impossible to be "surprised" by bills coming due at the end of the month.

This indicator is fully integrated into the tools allowing optimal monitoring of the Accounts Receivable. It has many advantages, the first of them is certainly the possibility for the collector to follow a self-assessment each day that passes by highlighting the most important stakes whatever they are actual (overdue invoices) or future (bills that will be due soon).

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