AccountsReceivableManagementBestPractices

1、00_salek_i_x 5/27/05 3:04 pm page iiiaccounts receivablemanagement best practicesjohn g. salekjohn wiley & sons, inc.00_salek_i_x 5/27/05 3:04 pm page iaccounts receivablemanagement best practices00_salek_i_x 5/27/05 3:04 pm page iiiaccounts receivablemanagement best practicesjohn g. salekjo

2、hn wiley & sons, inc.00_salek_i_x 5/27/05 3:04 pm page ivthis book is printed on acid-free paper.copyright ? 2005 by john wiley & sons, inc. all rights reserved.published by john wiley & sons, inc., hoboken, new jersey.published simultaneously in canada.no part of this public

3、ation may be reproduced, stored in a retrieval system, or transmit-ted in any form or by any means, electronic, mechanical, photocopying, recording, scan-ning, or otherwise, except as permitted under section 107 or 108 of the 1976 unitedstates copyright act, without either the prior written permissi

4、on of the publisher, orauthorization through payment of the appropriate per-copy fee to the copyright clear-ance center, inc., 222 rosewood drive, danvers, ma01923, 978-750-8400, fax 978-646-8600, or on the web at . requests to the publisher for permissionshould be addressed to the permissions depar

5、tment, john wiley & sons, inc., 111 riverstreet, hoboken, nj 07030, 201-748-6011, fax 201-748-6008.limit of liability/disclaimer of warranty: while the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warrantieswith respect to the accur

6、acy or completeness of the contents of this book and specifi-cally disclaim any implied warranties of merchantability or fitness for a particular pur-pose. no warranty may be created or extended by sales representatives or written salesmaterials. the advice and strategies contained herein may not be

7、 suitable for your situ-ation. you should consult with a professional where appropriate. neither the publishernor author shall be liable for any loss of profit or any other commercial damages, in-cluding but not limited to special, incidental, consequential, or other damages.for general information

8、on our other products and services, or technical support, pleasecontact our customer care department within the united states at 800-762-2974, out-side the united states at 317-572-3993 or fax 317-572-4002.wiley also publishes its books in a variety of electronic formats. some content that ap-pears

9、in print may not be available in electronic books.for more information about wiley products, visit our web site at .library of congress cataloging-in-publication data:salek, john g.accounts receivable management best practices / john g. salek.p. cm.includes index.isbn-10:0-471-71654-5 (cloth)isbn-13

10、:978-0-471-71654-9 1.accounts receivable.i.title. hf5681.a3s23 2005658.15'224dc222005003023printed in the united states of america10 9 8 7 6 5 4 3 2 100_salek_i_x 5/27/05 3:04 pm page vthis book is dedicated to the people and institutions who havehelped me immeasurably through the years.my

11、parents,who persevered in their lives through the greatdepression and world war ii to provide a wonderful childhoodenvironment for my brothers and i to grow up and be happy in our chosen endeavors.my brothers,who walked beside me during the early years and whohave since prospered in their chosen pro

12、fessions.linda, the love of my life and my wife of 27 years, who has been at myside the majority of my adult life, providing support and stability.our two children, michael and stephanie, who have been an unendingsource of joy and pride.the teachers, professors, and coaches atramapo high schoolin fr

13、anklinlakes, new jersey; the university of connecticut; and the amostuck school of business administration at dartmouth college; whoprovided the educational foundation to succeed. bob troisio,my mentor at international paper company, whointroduced me into the field of receivables management over aqu

14、arter of a century ago.00_salek_i_x 5/27/05 3:04 pm page vii contentsprefaceixchapter 1 introduction1why is receivables management important?1if it was easy, everyone would do it (well)2influences outside the control of the responsiblemanager5conflicting priorities6chapter 2 receivables antecedents9

15、quotation10contract administration12pricing administration16credit controls20order processing38invoicing40chapter 3 receivables asset management53introduction53portfolio strategy54collection process66special collection efforts83deductions processing92late payment fees and prompt payment discounts103

16、dispute management109account maintenance117payment processing121chapter 4 technology131overview131receivables applications132best practices134vii00_salek_i_x 5/27/05 3:04 pm page viiiviiicontentscost versus benefit138key points138chapter 5 organizational structure139overview139best practices141key p

17、oints148chapter 6 metrics, reporting, and incentives149overview149“reporting-driven downward spiral”150best practices152incentives158incentives best practices159key points164chapter 7acquisition integrations and erp implementations165overview165best practices170key points175chapter 8 outsourcing177o

18、verview177best practices180key points185chapter 9 selected topics187introduction187policy and procedures187internal controls188financing of the receivables asset189payment term changes192appendixreceivables management success stories193index20700_salek_i_x 5/27/05 3:04 pm page ix prefacein todays gl

19、obal marketplace, competitive pressure and industry prac-tice mandate that products and services be sold on a credit vs. cash-on-delivery basis. this practice often produces a receivables asset that isone of the largest tangible assets on a companys balance sheet. are-view of the 2004 fortune 500 ce

20、rtainly reveals this truth. receivablesranked among the top three tangible assets for 75% of the top 100 com-panies. surprisingly, management of this multi-million (or multi-bil-lion) dollar asset rarely receives much senior management attention,except when a serious problem develops. the custodians

21、 of the receiv-ables asset are similar to umpires of a baseball game; they are not no-ticed unless they do a bad job.this book discusses the importance of managing accounts receiv-able, and provides proven principles for achieving benefits such as in-creased cash flow, higher margins, and a reductio

22、n in bad debt loss. thefocus is primarily on commercial (business to business) receivablesmanagement. it excludes the specifics of managing retail (business toconsumer), healthcare provider (third party reimbursement), and inter-company receivables. the principles described apply to all business-to-

23、business commerce, but will often need to be tailored to industry-specific practices. the best practices in this book are real-world, field-tested practices.they were developed, refined, and improved by the author over a 16year period while working with over 100 companies in a wide range ofindustrie

24、s to generate tangible, measurable improvements in the man-agement of customer receivables. examples drawn from those engage-ments will be used throughout the book to illustrate real-worldproblems and solutions that drive measurable results.this book is designed for all managers who are responsible

25、for man-aging the receivables asset, either directly, such as directors of customerix00_salek_i_x 5/27/05 3:04 pm page xxprefacefinancial services and credit managers or indirectly, such as controllers,treasurers, and cfos. reading this book will enable readers to betterunderstand how to manage this

26、 important asset while learning numer-ous practical techniques that can be implemented immediately to driveimprovement. 01_salek_001_008 5/27/05 3:04 pm page 1chapter 1introductionwhy is receivables management important?it can be argued that revenue generation is the most critical function ofa compa

27、ny. dot-com companies that created exciting new products butfailed to generate significant revenue burned through their cash andceased operating. every company expends substantial resources togenerate increasing levels of revenue. however, that revenue must be converted into cash. cash is thelifeblo

28、od of any company. every dollar of a companys revenue be-comes a receivable that must be managed and collected. therefore, the staff and processes that manage your receivablesasset:?manage 100% of your companys revenue.?serve as a service touch point for virtually all your customers.(only sales and

29、customer service speak more with your cus-tomers.)?can incur or save millions of dollars of bad debt and interest ex-pense.?can injure or enhance customer service and satisfaction, leadingto increases or decreases in revenue.101_salek_001_008 5/27/05 3:04 pm page 22accounts receivable management bes

30、t practicesif increasing revenue, enhancing customer satisfaction, and reduc-ing expenses are important to you, read on.the benefits of effectively managing the receivables asset are:?increased cash flow?higher credit sales and margins?reduced bad debt loss?lower administrative cost in the entire re

31、venue cycle?decreased deductions and concessions losses?enhanced customer service?decreased administrative burden on sales forcethese benefits can easily total millions in profit and tens of millionsof cash flow in a year.if it was easy, everyone would do it (well)management of the receivables asset

32、 is a demanding task. the vast ma-jority of companies expect that over 99.9% of all billings will be col-lected. collecting ninety five percent of revenue is not good enough.companies will tolerate bad debt expense of several tenths of a percentof revenue, but not much more. which other departments

33、are expectedto perform at 99 plus percent effectiveness?it is generally expected that a high percentage of invoices will bepaid on time and over 90% within 30 days of the due date. manage-ment expects that the asset will be managed to promote sales and thatall customers will be served promptly, cour

34、teously, and professionally.astoundingly, most firms also expect this all to be accomplished for acost equal to about two to three tenths of a percent of revenue. quite a bar-gain!management of the receivables asset is a complex task. it addressesthe ramifications of practices and processes usually

35、outside the span ofcontrol of the responsible manager. it requires balancing of opposing01_salek_001_008 5/27/05 3:04 pm page 3introduction3 case historyhow improved receivables management can revitalize an organizationa high-technology firm whose products were well regarded by themarketplace was ex

36、periencing an especially serious receivables man-agement problem. bad debt exposure and the investment in receiv-ables were high (days sales outstanding dso was just over 100days). millions of dollars in disputed amounts were being concededannually, not in response to valid customer disputes, but si

37、mply as afunction of age. in addition, the companys stock price was de-pressed because of the high dso. wall street analysts interpretedthe elevated dso as an indication that:?their new products did not work properly, or?products were delivered on a trial basis, were not valid sales,and therefore we

38、re not true receivables.clearly, this firm was feeling tremendous pain from failure tomanage its receivables.over an 18-month period, this firm completely redesigned its re-ceivables management process, tools, staff skills, and managementculture, implementing most of the principles and techniques de

39、-scribed later in this book. the benefits from the companys improve-ment in its receivables, illustrated in exhibit 1.1, include: ?a huge increase in the stock price, and ?an increase in cash on hand equivalent to four months ofsales.in addition to the increase in stock price and cash on hand, badde

40、bt and concession expenses decreased by several million dollarsannually.priorities. it is affected by the state of the domestic and global economy,interest rates, foreign exchange rates, banking regulations and prac-tices, business law, and other factors. excellence in receivables man-agement is a c

41、ombination of art as well as science; it involves businessprocess, technology tools, staff skills, motivation, company culture,changing behavior of both customers and coworkers, the right organi-zation structure and metrics, incentives, and flexibility to deal withchanging external influences.01_sal

42、ek_001_008 5/27/05 3:04 pm page 44accounts receivable management best practicesexhibit 1.1benefits of improved receivables managementsoftware solutions providerdsostock price120651055710110154100559380804574373862603532613030264025dso2015stock price05dec-00mar-01jun-01sep-01dec-01mar-02sep-0212/31/0

43、2software firm dso versus cash balancedsocash balance $million120450400100350803002506020015040100dso20cash balance $m5000111122223000000000000000000222222222/100110011333333333/3692369231101_salek_001_008 5/27/05 3:04 pm page 5introduction5exhibit 1.2 illustrates the determinants or drivers of rece

44、ivablesmanagement. most of them are outside the direct control of the man-ager with responsibility for receivables.influences outside the control of theresponsible managerthe receivables asset is sometimes called the garbage can of the com-pany. this is because the receivables asset reflects the qua

45、lity of the en-tire revenue cycle operation. if an error is made in taking an order,fulfilling it, invoicing it, applying the customer payment, or if the cus-tomer is dissatisfied with the product or service, it will manifest itselfas a past due or short payment in the receivables ledger. the qualit

46、y ofthe receivables asset is an excellent barometer of customer service. it isfeedback the customer willingly and quickly gives. it is tempting to callit a free quality control measurement system, except it is not free. thefirm does not have to pay customers for the feedback, but it does incurcosts

47、in remediating the problems.exhibit 1.2drivers of improved receivables managementfront-end operationsorder processing and contract administrationcredit verification and controlsbillingpast duereceivablescollectionaccount reconciliation? dispute and deductioncurrentmanagement? cash application? terms

48、 and conditionsprepaymentsdue dates01_salek_001_008 5/27/05 3:04 pm page 66accounts receivable management best practicesin most companies the sales strategy and/or the front-end opera-tions (i.e., order processing and fulfillment, etc.) are outside the directmanagement control of the person responsi

49、ble for receivables manage-ment results. in such cases, the manager is measured on the results of aprocess that he or she does not fully control. in response to this, en-lightened companies will place the entire revenue cycle (order to cashcycle) under the control of a single executive, as a “proces

50、s owner.”this arrangement has numerous advantages, the primary one being thematching of authority with responsibility. even then the executive doesnot have total control over all the determinants, specifically the salesstrategy and the “need to make the numbers” at the end of a month orquarter.confl

51、icting prioritiesexcellence in receivables management requires trade-offs between con-flicting goals. the trade-offs are best balanced in accordance with thecompanys overriding strategic objectives. to optimize the trade-off,the relative ranking of these strategic objectives must be understood:?sale

52、s growth ?profitability ?cash generation?market share?risk tolerancethe conflicting objectives are to:?loosen credit acceptance criteria and controls to boost sales ver-sus tightening credit controls to minimize the investment in re-ceivables and the exposure to bad debt loss?achieve strong receivab

53、les management results and provide ex-cellent financial service to your customers versus minimizingthe cost of the function01_salek_001_008 5/27/05 3:04 pm page 7introduction7the best practices described in this book, when tailored to a com-panys strategic objectives, culture, and industry, will ena

54、ble excellencein receivables management in all of its dimensions. this excellence will1deliver the profit and cash benefits available to your company.note1. fortune, special issue, vol. 149, no. 7 (april 5, 2004), pp. f1f20.02_salek_009_052 5/27/05 3:05 pm page 9chapter 2receivables antecedentsrecei

55、vables antecedents are defined as all the up-front operations re-quired to create a receivable. they include:?quotation?contract and pricing administration?order processing?credit control?invoicingthis chapter addresses these receivables antecedent functions onlyas they affect receivables management

56、. naturally, there is a great dealmore information and detail about these functions, but we will limit thediscussion as noted.the antecedents are absolutely critical to the management of the re-ceivables asset. they directly impact the quality and collectability ofthe asset and are the key driver of

57、 the cost to manage a companys rev-enue stream. asimple formula to illustrate this point is:high customer satisfaction + accurate invoice = excellent receivables resultsthis formula holds true even if the core receivables managementfunctions (i.e., credit control and collections) are lacking. excell

58、ent902_salek_009_052 5/27/05 3:05 pm page 1010accounts receivable management best practicesorder fulfillment drives high customer satisfaction. in combinationwith accurate invoicing, the cost of delinquency, concessions, and man-agement of the receivables asset can be dramatically reduced. whencompe

59、tent credit control and collections are added, the total receivablesmanagement benefits are maximized.quotationoverviewquotation is the process of extending a formal offer for a product orservice to a prospective or existing customer. aclear, complete quota-tion lays the foundation for excellent fulfillment of a customer orderand accurate invoicing. the two key attributes of a quotation that p