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How To Tick Off Your Bucket List


Things have been fairly challenging here at JSP Credit Management’s headquarters just lately. An ever-increasing workload has placed some pressure on our ability to meet some of our usual deadlines, such as our weekly blog, for example. We apologise for that, as realise that some of our followers enjoy reading them. However, and despite what the title of this blog may suggest, we have not decided to abandon credit management for a career in tourism or life coaching.


If you’re one of the vast amounts of our followers that are already deeply entrenched in our industry then we imagine you have already guessed the kind of bucket list we are talking about. If your someone who has never had a job in credit management before then, at risk of disappointing you, we're afraid to say this has got nothing to do with swimming with dolphins or jumping out of aeroplanes. Though if you take on board what we say next you stand a better chance of being able to afford to do those things.


A bucket list in the context that we are using the term here refers to a document, often printed out (although probably less so these days), that contains all your company’s customers and their outstanding invoice details. They are reports that are produced by the various systems that businesses can use to manage their accounts receivable function, such as Oracle or SAP to give some obvious examples.


The word bucket is used to describe the way the report breaks the debts up into segments depending on the age of them. So under a customer account heading it will often include details of the invoices outstanding for that customer and then adjacent to that will show the value outstanding in the corresponding “bucket” which are usually labelled something like “0-30 days”, “31-60 days”, and so on.


These ageing buckets are really important for businesses to monitor the profile of their aged debt and produce targets and forecasts for cash collection. They also help collectors to plan their work, which usually is based on a working month, although quarter-ends and year-ends are important in credit management too, and if you’re an experienced collector then you may have used these buckets to form a strategy for your approach to collecting as much cash as possible throughout the month.


Although we have come across credit control departments that do not seem to be working under much pressure in the past, it is arguably the exception rather than the rule, and it is more common to find a team of collectors who are working with a group of accounts or covering a certain region or business function that at least demands all of their available capacity to perform the job well throughout the month. We think that is how it should be. Collectors should be given a healthy level of challenge to perform their best.


Yet, what sometimes happens, is a team of highly skilled collectors might have reached their target for the last 3 months and this can get interpreted as a signal to their Credit Manager,FD or CFO that they are capable of doing more or they are not being challenged enough, so the targets get increased. This means that collectors are looking for even more efficient ways to work all the time, if they’re not beginning to feel a little demotivated that is. We think that is where the bucket list comes in.


When you simply cannot cover the entirety of your bucket list throughout the month, as well as do the numerous call-backs that are an inherent aspect of the job role of a collector, and the time spent writing notes on systems and sending emails out with copies of invoices, you get to a point where you realised you have to be a bit more selective with how you approach that bucket list. We have been there many times ourselves.


But what is the best way to do it? Well, our suggestion is to bear in mind the way your performance is measured. It is usually first and foremost by the amount of cash that you collect in each month and whether or not it meets, or exceeds the targets set out at the start of the month. We realised that some companies also choose to set targets on other metrics related to accounts receivable such as amount of debt in query, or how long queries are taking to resolve or debtor days targets (otherwise known as DSO).


So, if we have established that our main goal is to maximise cash we can rule out starting on the first page of the ageing buckets report and working your way through until you get to the end of the month, only to find that you have still got several pages left on the report that you have not got round to chasing because your workload exceeds your capacity. If you kept missing the last few pages each month this would cause a problem, especially if it contained some big numbers.


So what is a suitable alternative approach to take? Well, something we have done in the past is play the percentage game. What do we mean by that? Well if you were to sort your report by the value you would probably find that a relative proportion of your overall aged debt was accounted for by a relatively smaller number of accounts. We have worked on some ledgers before where 75% of the debt was covered by the top 25 accounts on a ledger that contained 800 accounts.


If that is the case then it would seem like perfectly logical sense to make a start on your bucket list by making sure that you get all of your calls done to your biggest value accounts first and set any reminders needed to do follow-ups on, including with emails too. If your priority is maximising cash then the follows up should take precedence over making first-time calls to lower value accounts. However, that should be easily achievable given you are dealing with a lower number of accounts (unless they ask for an account reconciliation!).


Next is where the buckets come into play. If you have been doing collection work for any considerable period then you will know that after the big value debts, the one thing that is going to catch the attention of the Director’s or whoever you have to do your debt reviews with, is really old debts, regardless of value. Many companies specifically use their 90+ debt percentage as a metric to measure the performance of the cash collection team.


So what do you do? We have been known to draw a big thick red line down between the “61-90” bucket and the “90-120” or “90+” bucket and focus on every debt in the last one or two buckets before we move on to the next stage of the strategy. This is usually where your old disputed debts are sitting so it can be quite a time-consuming exercise to complete this part, especially if some of the queries are payment queries involving historic account reconciliations, but it can also be incredibly rewarding when some of them come in!


Again, if a task comes up related to your first phase of collecting the largest debts first then you will need to focus on that as it should take precedence and go back to dealing with the 90+ debt once that has been done. Then once the 90+ debt is done and you are on top of your largest debts then you can focus on the lesser valued debt which is less than 90 days old, or whatever your company considers to be bad debt. You may find that this phase contains many customers who pay you regularly each month anyway and it may require less attention than the previous two stages.


By the end of the month, or certainly, after a couple of months, you should find that your numbers look better and you may find yourself getting into a groove of doing it that way too. However, what we will say is that this all depends on your company’s goals. If your company is less interested in cash collection totals and more interested in preserving delicate relationships with key accounts or is highly oriented towards sales then you may find you experience some disruption from chasing to terms on some big accounts, and that is fairly common too.


There is a great deal more to be considered when it comes to cash collection strategy but we hope we have given you a brief insight into it above. If you are interested in knowing more about ways to do that then get in touch for a free no-obligation discussion at www.jspcreditmanagement.co.uk or contact us on 01827 66820 to discuss your needs.

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