By Art Goldman, CCE
If you work - as do I - for a medium-sized company, your
month-end experiences have never been pretty. In the typical chaos
of the month-end crunch, how often have you truly looked forward to
the ineluctable pleasure of producing management reports? Perhaps you
have questioned, as have I, the actual value of the numbers you generate.
And so perhaps you'll question my sanity if I suggest that a change
of attitude may be in order. Sometimes bothersome duties can be converted
into opportunities. The month-end reporting cycle can be used to your
benefit. Let's explore how.
Our work is often judged by the way the aging looks;
thus, the aging columns will monthly change, and so goes the stock
of the credit manager. Thus, if the over 90 goes up two percent, you're
that much closer to early retirement. Like you, I'd like to be judged
on the totality of the handling of my department's affairs, not on
one single number or measure. Mind you, one can't argue with the simplicity
of using a single measurement, but when any, old, bad month end can
mean a trip to an ICU, self preservation ought to dictate a somewhat
It might be wise to here define the term, "Dashboard
Reporting." The term, of course, refers to that most familiar
object, the automobile dashboard, which is engineered to give you everything
critical to the operation of your car at a glance. I believe that's
what month-end reports should do as well. Everything you or your bosses
need to know should be easy to read and on a single page.
I have to thank a former boss, the CEO of a company,
for coming up with the term. He wanted all of his managers to give
a simple report at staff meetings. He wanted to know where we stood
in comparison with the prior year, and how we measured up to the competition.
Further, he wanted it in "dashboard fashion," meaning he wanted
it in a straightforward format and on a single page, so it could be
easily seen through an overhead projector.
In developing this report, I had to reckon with two considerations.
The first decision I had to make was what I would include in the report.
Would I only reiterate information from the Accounts Receivable? Would
I list various performance measures? What else could I include? What
would I not include? The second major consideration would be how to
organize this one page wonder.
Taking my inspiration from the sources listed below,
I began to construct the illustrated report. Since I wanted to convince
management that we ought to pursue a more conservative approach to
our collections strategy, I felt that I could probably make my case
best by displaying our performance statistics. Sometimes arguments
made in the abstract do not carry the weight of hard, cold numbers.
I was right: once management saw the difference between the "Best Possible
DSO" and the regular "DSO," staffers began to think about
all the cash tied up in the uncollected A/R.
Incidentally, it is ideal to also have a backup plan
for comparison reports, highlighting the benchmarking information.
In this regard, one very important source is The Credit Research Foundation
(CRF). This NACM affiliated, educational foundation publishes quarterly
statistics for eighteen different SIC classifications. Another, useful
source is one's own trade group. If you can obtain the cooperation
of other credit managers within that group, you may be able to get
comparative statistics for your own use.
Since I've recommended a one page format, how much
information can be included? Quite a bit, as it turns out.
look at a possible format
Please note that I've made up all the numbers in this
excerpt, and that it's supposed to report on a full thirteen months.
Note that, taking my cue from CRF, I've reported DSO, BPDSO, CEI, etc,
on a quarterly, rather than a monthly, basis. This is important, because
whether management is interested in comparisons with benchmarking sources,
you ought to be. As CRF's information is available only on a quarterly
basis, I chose to report in the same manner. Whatever your personal
preferences, from this segment, it should be possible for you to construct
your own version in Microsoft Excel, or whatever spreadsheet software
Each section of the above is excerpted from a separate
report, so that should more detail be preferred, further backup can
be provided. I do not make it a practice to include more information
than I need in order to make my case. I would be willing to provide
sample, backup reports to interested parties. Space here precludes
illustrating all of them.
The first section of the sample comes from the actual
Accounts Receivable report, generated monthly on the company mainframe.
While management may want more detail, I have found most employers
can live with just the current and over 90 columns, plus their percentage
of the total A/R. This allows a quick and easy comparison of prior
months and (in the real, thirteen month version) the prior year, of
The "Performance" section uses the same measurements
that appear in the quarterly sampling done by CRF. Obviously, you can
use another source else for benchmarking, but I found CRF a good source.
Selection of a source to use for benchmarking is important. Some sources
may be more specifically geared to your company and its niche, so chose
wisely. This subject, explored fully, could easily earn one an MBA;
space here prohibits a more detailed discussion. By the way, the "SWDSO" does
not come from CRF, it comes from the Gallinger paper listed below (see
sources). It stands for "Sales Weighted DSO," and it is a measure
that I have found to be pretty useful in the past. Management chose
to see it monthly, although I would have preferred to do it only quarterly.
Gallinger is an advocate of it, since he claims it reduces the "sales
bias" which he points out reduces the effectiveness of nearly
all, popular performance measures. For a full discussion, see Gallinger.
"Credit Cost and Activity" refers to the credit
clearance efforts of my department. Here, I report the number of credit
applications I processed in the prior month and relate the costs incurred
in doing so. I also show the average number of days it took to set
up an account, from date of receipt in my department to the date of
the final credit decision. The percent declined result is particularly
important for judging the strictness of your credit policy; if too
many accounts are declined, you may need to revisit your decision methodology.
The "Bad Debt" segment is probably self explanatory.
I've expressed bad debt as a percentage of monthly sales, but you could
use any yardstick you like. One enhancement might be to express it
as a cumulative percentage of sales, allowing you to project your likely
trajectory toward yearend.
The final segment is the infamous cash forecast. I don't
want to go here, because it's a booklength subject. Suffice it to say
that whatever method you use, calculating a collection ratio should
take but a few moments, and provides yet another measure of historic
Good luck in your search for the best month-end reporting
Christie, George N. and Albert E. Bracuti. Credit Executives Handbook. Columbia:
Gallinger, George W. "An Evaluation of Techniques for
Monitoring Accounts Receivable." Columbia: NACM,
The Credit Research
Foundation 8840 Columbia 100 Parkway Columbia, MD 21045 (410)
Art Goldman is the corporate credit manager for Vertex
Standard. His e-mail is firstname.lastname@example.org
Reprinted by permission of: Blakeley & Blakeley
LLP Spring 01