November Article

What is the best measure to use for incentivising B2B collections staff, and how do you ensure it is rigorous but fair and balanced? 

Credit controllers love the thrill of the chase. Seeing payments roll in, difficult debts being cleared or changing a customer’s payment behaviour can bring a real buzz. Over the years, seeing the satisfaction of my team achieving targets became as rewarding as actually hitting the targets. The day to day thrill for credit controllers can’t be measured on a spreadsheet, isn’t displayed in the balance sheet and probably goes unnoticed by most of the company. 

The contradiction here is that many finance departments stick to traditional measures for their collection team such as DSO or percentage overdue. Don’t get me wrong, these measures have their place, however, they are a static snapshot at period end. The collection team may even be several days into a new month before they know the results. The trick is to take those indicators and convert them into something tangible that can be seen by the collections team every day. 

So, what is the solution? I always found that the most visible way to measure a team’s performance on a daily basis was to set a cash target. Not only are you able to quickly track and update progress but combining this with ‘payment promises’ helps your team to understand if they are going to achieve the target. 

Sounds straight forward doesn’t it? However, there is a danger with this simplistic approach. Cash arriving from relatively new invoicing will eventually result in an aged debt issue. Cash flow may be good in the short term and the FD might be happy with the bank balance, but you are building a problem for the future. 

This is where you will need to dedicate time creating the correct target. You need your team to understand the target and more importantly believe it’s achievable. 

My solution for this was to create a target using 3 steps:

  • Firstly, convert the business objective (DSO, overdue etc) into a cash target. 
  • Secondly, split the cash target across aging buckets. This ensures that the collection team places the right amount of focus on aged items.
  • Thirdly, and most importantly, discuss these targets with the team. Credit controllers understand their ledger better than anyone and know the potential blockers to achieving the results. Give them the opportunity to highlight these. That doesn’t necessarily mean you change the targets. Instead it’s an opportunity to support your team and help them to deliver. Be realistic though - if you don’t believe an issue can be overcome before month end, don’t punish your team with unrealistic goals. Be prepared to remove those values from the target.
Once you have the target, you need to make it visible. It doesn’t matter whether you have a large TV monitor, a whiteboard or flipchart paper, you want your team, and the rest of the business, to be able to see the progress. 

Now, let your collection team start the chase, update them regularly and enjoy the buzz it creates. Who knows, with a target as easily understood as cash, your team’s excitement might just spread across the company!

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