Accounts Receivable Collections Incentives

Cindi Gillette's Profile

Accounts Receivable Collections Incentives

I am looking to get a sense for industry practices around incentivizing AR staff to improve collections. Do you or don't you incentivize AR staff above and beyond their normal pay. If so, what measures to you use to determine the incentive, and how do you continue to raise the bar?

As a point of reference, I work in the mental healthcare industry, so receivables are typically due from Medicare, medicaid, insurance, and client self pay.

Answers

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Cindy
Great question, and the answers could be diverse.
I found as a finance leader that I could categorize non payment of invoices into 3 categories:
1. You did not deliver what you were supposed to deliver (in terms of services and expectations of value)
2. You did not submit proper paperwork to get paid (i.e. billing data was wrong,or it was incomplete or late or sent to the wrong address)
3. They had no money in the first place.

What can your AR collections team control?
What can they identify as root causes?

For example:
1. Collections can be proactive on follow up of overdue payments-early detection of issues..are their first calls and follow ups well timed? Do they focus on big amounts first?
2. If collections discover that the reason for delay is bad paperwork or incorrect pricing or incomprehensible bills, do you reward them for identifying solutions? Perhaps the root cause is a billing form/invoice that is too hard to understand and that is a pricing issue or a billing issue that is upstream.

Often collection problems are to do with factors outside the control of collections staff-after all, if customers pay on time, there is no need to "fix a problem."

Regards
Len

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Member's Profile

Cindy,

I have found the best incentive to be DSO reduction. Set the bar at current DSO and give incentives at DSO reduction levels ( example-0.5 days-3.0)-incentive increases with larger reduction.

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Proformative Advisor
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Incentives can be a team approach, empowerment of the fine job that the person or team is doing in reducing A/R collection days; comparison with industry norms and how well they are doing.

In these times of tight finances, not only is collection of A/R in a timely fashion important, but so is all the dollars collected.

Wayne Spivak
SBA * Consulting LTD
www.SBAConsulitng.com
Twitter: @WSpivak

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I have used AR>60 days. I have multiple collections personnel and give individual incentive for thier assigned accounts and if total AR<60 meets overall goal and each meet thier personal goal the incentive for that month is doubled. I have also incentivised the successful "identification, solution recomendation, and implementation of corrective action" by not only Collections employees but all accounting, customer service / sales employees also with regards to AR Collection related processes. Before implementation we were running 75-80% <60/total AR - now we are running 98% <60.

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What are you using as the reward? A bonus? A raise? A pat on the back? I want my staff to get to the 98% < 60!!!! Please tell me! How long did it take to work and are you having any other issues (billing issues, etc.).

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The incentive we used for the AR < 60 was a $50/ month bonus per person. The double I mentioned would obvioube $sly be 100. We offered $200 bonus for implemented process improvements. Each of the collectors works with certain customer service / sales folks. I also have lunch catered in for the collections person and thier customer service team if they meet thier AR goal. This does two things - it helps get CS/Sales involved in the collections process and they start putting pressur on the Collections people becasue they want thier lunch! It took about 18 months to get it to the point where it is now, but we saw immediate improvements. Hope that answers your question.

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Thank you David. Money usually talks..good ideas..thanks for sharing.

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In follow up to Len Green's sound advice, I would understand what the best possible/practical DSO is for the customer base and, particularly, each collector's portfolio. We all know how difficult government payments are esp. if there is any paperwork problem. I would convert DSO targets into cash collection targets and then drill down to portfolio levels. I would assume a user friendly dispute mgt. process is in place and thus segment unencumbered A/R accounts from disputed balances so the accountability is clear. Link cash collection targets overall drilled down to there is a individual commitment level. Collection call targets must be made by portfolio and size of balances to justify the collection staffing with realistic calling volumes. I have prepared a collection intensity matrix to support an overall collection target using portfolio segmentation as the driving force. I would be willing to share same with interested professionals. Setting compensaton incentives must incorporate contact goals and collection effectiveness translated into DSO reductions by portfolio ownership. Make it meaningful related to the cash flow improvement and your cost of capital. Make it medium term so as to avoid short term in nature. Involve non-finance owners if disputes are identified as a major collection impediment. Motivate the staff with realistic cash targets and continue measuring collection activities and individual performance goals.

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Robert, I like your structured approach to this challenge. Could you share with me? Your profile doesn't allow private messages so I'm posting here in hopes that you will see and respond directly.

JSchwartz56 AT comcast DOT net

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Love your structured approach also...can you please share the matrix with me? Thanks so much.

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