The aging balance, this classic tool in terms of appreciation of collection performance, deserves that we take some time to really exploit it and also know how to rejuvenate it.
Little reminder: Constituted of different buckets, it looks as a simple tool.
The standard approach is to make 30-days tranches for delays and a "common block" for not due receivables.
The graphical representation in the form of a histogram makes possible to "appreciate" the situation of the delays in time. Do not forget that the open receivables impact the cash flow but can also generate provisions or even losses because of their age and the recovery probability that decreases with the time going on.
Do not fall into the trap of a passive reading with the numerical information often showing Current AR / Overdue AR / Total AR and beautiful steps as a representation of the age of the overdue.
Focusing on the old makes it possible to better detour it, to better identify it to put in place the necessary actions for its treatment.
To do this, it is necessary to be able to zoom on the delays to + 30d, + 60d, + 90d or even more. Looking at the tranches of delays, makes it possible to set up this focus which is often missing at the first reading of an aging balance.
As you can see in the diagram below, defining a threshold of delays to have the value of overdue above xx days allows to challenge without interpretation its performance:
Because the first tranche (0-30d) that can even be reduced to 0-15d for more challenge, does not fully translate the recovery performance: this slice is often made up of administrative delays linked to the payable accounting processes of your customers. The weighting of this tranche in the overall assessment of performance must remain low, which is why a 15-day period is normally sufficient.
This should not slow down or stop the preventive dunning (before due date) to raise several points: have our client received your invoices? / is there any reason why your customer can block or slow down the payment? / does our customer remember the upcoming payment to make?
Let's go back to the visual on our balance with the delays> 15 or 30 days which fully enter in the analysis of the performance in cash collection.
This process can be duplicated on delays at +60d, at + 90d even more
This operation provides a detailed reading (list of identified customers) of our aging balance.
It is here that the rejuvenation treatment must begin:
Except solvency problem, an old invoice still unpaid often masks a dispute not clearly identified or untreated: it is therefore necessary to integrate the scope Sales Administration (CCC) and the trade on a process of treatment and resolution as soon as the litigation is "Unmasked".
It is imperative to have the list of clients concerned by this aging balance focus to go directly to the heart of the problem. Of course, a plot of the status of each issue explaining the delays allows to have an action upstream to fix the cause of the issue.
This approach will quickly clean up the situation of old delays and bring a rejuvenation of the aging balance.
To carry out this rejuvenation with the most success possible, it is advisable to practice the method of vise, that is to say to continue parallel recovery actions from -15j before maturity.
Another way to explore: make sure not to have recovery scenarios with too long staggered steps in time to not show a last step at 65 days or more. Remember that your customers already benefit of a payment term, so there is no need to tacitly accept an additional delay and to be too tolerant.
If you follow these tips, you will quickly find that your aging balance will display smaller right columns in the graph. It is by mixing these approaches that you will have a quantitative but also qualitative improvement. Feel free to set objectives with a rate by tranche to challenge your performance: is a 15% overdue rate on the 0-30 days bracket not better than a rate of 10% on the 60-90 days tranche?
The lifting of your aging balance now depends only on you..
Pics from My DSO Manager demo
Little reminder: Constituted of different buckets, it looks as a simple tool.
The standard approach is to make 30-days tranches for delays and a "common block" for not due receivables.
The graphical representation in the form of a histogram makes possible to "appreciate" the situation of the delays in time. Do not forget that the open receivables impact the cash flow but can also generate provisions or even losses because of their age and the recovery probability that decreases with the time going on.
Do not fall into the trap of a passive reading with the numerical information often showing Current AR / Overdue AR / Total AR and beautiful steps as a representation of the age of the overdue.So how to rejuvenate his balance?
The answer is simple: you must remove all its wrinkles so be able to significantly reduce the old invoices, temple of time elapsed.Focusing on the old makes it possible to better detour it, to better identify it to put in place the necessary actions for its treatment.
To do this, it is necessary to be able to zoom on the delays to + 30d, + 60d, + 90d or even more. Looking at the tranches of delays, makes it possible to set up this focus which is often missing at the first reading of an aging balance.
As you can see in the diagram below, defining a threshold of delays to have the value of overdue above xx days allows to challenge without interpretation its performance:
Zoom on overdue +30 days.
Why?Because the first tranche (0-30d) that can even be reduced to 0-15d for more challenge, does not fully translate the recovery performance: this slice is often made up of administrative delays linked to the payable accounting processes of your customers. The weighting of this tranche in the overall assessment of performance must remain low, which is why a 15-day period is normally sufficient.
This should not slow down or stop the preventive dunning (before due date) to raise several points: have our client received your invoices? / is there any reason why your customer can block or slow down the payment? / does our customer remember the upcoming payment to make?
Let's go back to the visual on our balance with the delays> 15 or 30 days which fully enter in the analysis of the performance in cash collection.
This process can be duplicated on delays at +60d, at + 90d even more
This operation provides a detailed reading (list of identified customers) of our aging balance.
It is here that the rejuvenation treatment must begin:
Except solvency problem, an old invoice still unpaid often masks a dispute not clearly identified or untreated: it is therefore necessary to integrate the scope Sales Administration (CCC) and the trade on a process of treatment and resolution as soon as the litigation is "Unmasked".
It is imperative to have the list of clients concerned by this aging balance focus to go directly to the heart of the problem. Of course, a plot of the status of each issue explaining the delays allows to have an action upstream to fix the cause of the issue.
This approach will quickly clean up the situation of old delays and bring a rejuvenation of the aging balance.Another way to explore: make sure not to have recovery scenarios with too long staggered steps in time to not show a last step at 65 days or more. Remember that your customers already benefit of a payment term, so there is no need to tacitly accept an additional delay and to be too tolerant.
If you follow these tips, you will quickly find that your aging balance will display smaller right columns in the graph. It is by mixing these approaches that you will have a quantitative but also qualitative improvement.The lifting of your aging balance now depends only on you..
Pics from My DSO Manager demo