09.26.2022 | Posted by Erik
How to Tell if Your AR Team Is Doing a Good Job
As an accounts receivable outsourcing firm, we see AR as an art form of sorts that requires a particular skillset and some technique to get it right. And we’ve found that many employees need a bit of coaching to excel in the outsource receivables world.
Too often, though, companies can’t accurately tell how well their AR departments are performing. This makes it tough to know which employees need an extra level of coaching and which don’t.
So, how can you determine if your AR team is doing a good job? How can you identify the employees who are excelling, and which need more coaching? Let’s talk about how we monitor our in-house performance – and then we’ll share some tips for how your organization can do the same.
3 Metrics to Determine How Your AR Team Is Doing
The best way to measure performance is with objectivity and hard numbers. We recommend removing your preconceived notions about your AR department’s performance and looking at the following metrics instead:
1. Number of Touches Per Hour – As an outsource receivables company, we’ve found that success is directly tied to output. A good AR rep can make between 18-26 touches (phone calls and emails) each hour.
Number of Emails Per Hour – Emails should be going out at a rate of around two emails for every one phone call. Make sure your team is both sending enough and not sending too many.
Number of Phone Calls Per Hour – Even though your team should send out more emails than phone calls, it’s still super important that they’re making phone calls, too. You can’t be successful at collections if you refuse to get on the phone with people.
2. The Number of Invoices and Accounts Past Due – Your invoices and accounts past due should be your biggest indication of how well your team is doing. If you consistently have a lot of past-due invoices and accounts, it’s a good sign your AR needs some work.
As a gauge, we typically start contacting past-due customers at 7 days after an invoice is due. On average, we find ourselves contacting 40% of the aging each month. If your organization is well over this number, the culprit could be your processes – including how aggressive you are with your credit approval protocols. Or it could be an AR issue. If your organization is well under this number, either you’re lucky to have prompt paying customers, or you could be losing sales by being too tight with credit approvals. (Keep in mind that industry fluctuations can skew this number a bit, so you want to look at this number overall and historically to identify trends.)
3. Billing Issues – If there’s an issue every time you call an account, it might be a procedural issue, not a collection or cash flow problem. Find those accounts that constantly have problems and see how (and if) your team is working with these companies to solve them. Conversely, see if there’s a consistent complaint about your company’s invoicing process. You might even find that it’s your procedures that are causing the most issues.
Knowing these metrics is just one part of the equation. The most critical part is how you apply these metrics to improve your team’s performance.
How to Improve Your AR Team’s Productivity and Performance
Here are accounts receivable outsourcing insights for leveraging the above metrics to ensure your team’s performance shines.
Step 1: Get an Accurate Look At Your Company’s AR
The easiest way to gauge your team’s performance is to open the books and look at the hard numbers. Many companies assume that their AR team is doing a good job if the aging looks good. But things like unapplied payments or credit memos can skew the numbers. Before turning the focus to performance, it’s important to figure out where you actually stand.
Step 2: Set Some Hard Number Goals
You won’t be able to improve anything without setting some quantifiable goals. Identify a select number of customer touches you want your reps to hit every day, week, or month. Then, consider setting achievement goals – like getting three promises for payment each day and bringing one account current each month. Base these goals on the data you collected in step one.
Step 3: Build a Team, NOT a Competition
In our experience as an outsource receivables firm, it’s better to let everyone compete against their own historical productivity versus against their colleagues. For example, instead of comparing an employee’s productivity against a co-worker’s, we ask, “How’s your performance this week compared to your performance last week? Are you improving?” By doing this, you can motivate and coach the individual employee without destroying the team spirit.
Step 4: Focus on Coaching (Not Monitoring)
Most of the time, if you’ve completed steps one through three, you won’t need to have that many difficult conversations. Employees will know when they’re having a great week based on whether they’re on target to meet the goals. Instead of micro-managing and closely monitoring every second of their day, focus on cultivating an environment that says, “I trust you to hit these metrics, and if you don’t, we’ll work together to figure out how to make it happen.”
Hit the Metrics Every Time When You Outsource Receivables
If you don’t want to fuss with measuring your team’s performance or tracking AR productivity metrics, consider hiring an accounts receivable outsourcing firm instead.
When you outsource receivables, you can rest easy knowing your past due accounts are being pursued diligently and delicately to get you paid while retaining your valued customers.