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Issue 42 |
May 06, 2009
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Understanding and Using the Average Collection Period
How quickly you receive payment for your "charge" sales can have a profound affect on your cash flow. Shorten the collection period and you free up cash. Conversely, an increase in the average number of days it takes you to collect requires additional cash to be invested in your receivables. |
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The Roundtables are now collecting data to help you monitor your average collection period and to also allow you to compare your effectiveness to your peers. In today's economy, it is vitally important that you pay close attention to past-due receivables. These are what drive an increase in your average collection period result. We have two links you can follow if you are not sure just how this number is calculated, or how it impacts your cash flow. The first one shows how to compute your average collection period. Measuring Average Collection Period will show you an easy to use formula as well as give you suggestions on how to simplify the data collection.
The second link will show you How to Use the Average Collection Period. It also includes a table displaying exactly how a change in the period affects your cash flow.
Take a few minutes now to access both of these web pages. Both articles are short but very informative. Please note that "sales" as referenced in these articles refers to "charge" sales. You can begin tracking your collection period now and become diligent about controlling that number. As a rule of thumb, if your payment terms call for payment within 30 days, a typical average collection period will be about 45 days.
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Inspirational Words of the Day
"
While we may not be able to control all that happens to us, we can control what happens inside us
”
- Benjamin Franklin
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Our personal lives, as well as our businesses, are impacted by things going on around us that we cannot control. However, we can often control how we allow those happenings to affect our attitude. Negative news met with a positive attitude often results in a new opportunity. The secret is how you look at it. Become adept at finding the silver lining in every cloud of bad news and you will stand head and shoulders above those who only see the calamity.
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Checkmate Tip: Accurately Capturing "Requests"
Checkmate reports that measure part performance, customer activity, and salesperson performance all depend on having accurate request data. Recyclers who use these reports to manage their businesses need to first make sure that practices that make request data inaccurate are addressed. Here are the two main causes of inaccurate request data:
- Salespersons fail to look up every request. It's only human nature to shortcut the lookup process when you know that there is no chance of the item being in your inventory, or you know the part so well that you don’t need to look it up. While this might save a few moments at the time, it corrupts the validity of your numbers. In the case of vehicles you've never had, you will never show the request activity that could support you buying that vehicle. Stressing the importance of looking up every request requires aggressive employee training. Once done, you still need to monitor your sales staff to verify compliance with your instructions.
- Parts are looked up before the customer account. Account request activity is recorded and used in numerous reports that measure it to help identify your best accounts, those you have lost or are in danger of losing, and even those that abuse you with excessive returns. In order to accurately post requests to an account, the account must be selected prior to the part lookup. You can set up the "Find and Sell" screens to always return to the "Customer" field first for a part look up but you will still need to impress your staff with the need to verify that the account information is correct before starting a lookup.
©2009 Car-Part.com. All rights reserved.
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