This week credit articles

Measuring credit and collections results

Our society has many scorecards. In sports, we have many, from goals against averages in hockey and batting averages in baseball, to how well we’re doing at work with our annual performance review.

Well-developed and understood measurements help:

• Identify areas of potential improvement and growth
• Reduce errors or defects
• Increase customer satisfaction
• Increase productivity
• Increase cash flow
• Reduce bad debt

Many of the most common measurements in credit and finance are historical measures, measuring things that have already happened. Fewer measurements use targets in the future. That’s not going to change but we’ll discuss that another week.

The most common measurement is Days Sales Outstanding (DSO). This metric is an indicator showing both the age, in terms of days, of a company's accounts receivable and the average time it takes to turn the receivables into cash. DSO can be compared to industry and company averages, as well as company selling terms (e.g., Net 30) for determination of tolerances by the company. There are several methods of calculating DSO.

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What kills businesses

1. Failing to engage and keep ahead of large customers with new opportunities/solutions to meet their needs.
   
   
2. Nurturing all customers and helping them when they need it.
   
   
3. Failing to build relationships at different levels. Many business relationships are based on one person. If that person leaves or worse dies, the relationship is often severed unless it is just a commodity-based transactional – “we use you when we need you”.
   
   
4. Not having a sound accounting function. Most businesses know where their inventory is, where each computer is located, but their accounts receivable processes are based on hope.
   
   
5. Poor training or no training. Canada is near the bottom of the list in productivity and training hours per employee.
   
   
6. Not watching the competition.
   
   
7. Poor customer service, including relationships with customer’s accounting. Who knows the influencers that companies have that can destroy a relationship?

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Last week credit articles

The good, the bad and the ugly:

StatsCan reports corporations earn record profits in 2007

Canadian corporations earned record operating profits of $262.5 billion in 2007, a rise of 7.8% from 2006. Banking, retail, wholesale and petroleum refining industries led the increase. However, about half of the 22 industry groups surveyed by Statistics Canada lost ground in the quarter, with the manufacturing sector reporting the biggest decline.

Retail sales rose 7.5% to $433.2 billion and profits rose to an all-time high of $16.5 billion from $13.6 billion in 2006. Clothing, department and other general merchandise stores made gains, as profits increased 26.3% to $5.6 billion. Retailers of furniture, home furnishings and appliances earned profits of $1.9 billion, up from $1.1 billion in 2006.

Wholesalers earned operating profits of $19.1 billion in 2007, a 12.1% improvement over 2006.

Manufacturers earned operating profits of $45.0 billion in 2007, up 5.4% from 2006 levels. But much of the gain was concentrated in the petroleum, food, computers and electrical products, while other manufacturers did not fare as well. Operating profits fell 5.5% among the remaining manufacturing industries last year.

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The credit manager’s four-legged research stool

As you may have discovered by now, it is possible to find information about companies in premium services that you’ll not find on the web.

Conversely, you can unearth information on the web that you’d never locate in premium services. Ideally, the most comprehensive search on a company (or any topic for that matter) includes alerts (free and premium), a search on the public web, complemented by another on a premium service, followed up with some primary research (discussion with a real live human, in person, by email or over the phone). Why is this four-point approach preferred? Because not everything that counts is in one place, or online. As you will appreciate, access to the Internet does not mean that industry credit meetings can be skipped, customer visitations eliminated or relationships with credit colleagues neglected.

A word about webcasts

As a researcher, you need to be aware of the changes taking place in the world of webcasts, the Internet version of the conference call. Some companies now use the web as a preferred method of communicating with investors. That means you. So take a look at the main players providing these services to corporations.

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Past credit articles

Read all previous credit articles 2008 >

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