Outsourcing receivables is hardly a new process. However, in order to guarantee yourself a smooth and easy transition you must have a plan that all your managers as well as employees can understand and follow. These easy steps will help you successfully outsource your receivables with limited work and maximum gain.

1. Ask your outsourcing partner to supply information that will explain what they require to work one of your accounts. This will minimize your effort in the long run. It is best to send a complete file to an agency rather than go back thru the information time and time again searching for additional documentation.

2. You must have a clear understanding of what receivables you want to outsource. This important process will set the guidelines for your employees and will go a long way in ensuring the success of your outsourcing partnership. By having a detailed operating procedure in place your employees will adapt more easily and a smooth transition will result. Be specific regarding when to outsource. For example; 90 days, 120 days, after 3 dunning notices etc.

3. Have a contact person from your company assigned to agency accounts. The agency will need to send reports, get settlement parameters and send remittances checks.

Delta Recovery Systems works with each client individually molding our services to fit their needs. Our relationships are based on trust, reliability and protecting our clients' interests.

March Madness is upon us, and that means Spring can't be far behind. This month we'll offer some tips to facilitate your collection process, and we'll also look at some figures that measure effectiveness and efficiency in the collection process. As always, we welcome any comments, suggestions and/or questions you may have concerning our newsletter and industry issues in general.

Comments, Suggestions and Feedback

Days Sales Outstanding (DSO) is one of the most common performance metrics used to determine the effectiveness of accounts receivable management. This measure, however, is more a measure of efficiency -- how quickly receivables are collected -- than effectiveness, which looks at the quality of the collection process itself.

DSO is important as a financial indicator to the extent that it shows the age, in terms of days, of an organization's accounts receivable and the average time it takes to turn receivables into cash.

It can give insight into the changes that occur within an organization's receivable balance. Indicating whether a change occurred because of a positive or negative fluctuation in sales during that period, or if other business factors such as promotional discounts, seasonality, selling terms, etc. created the effect.

DSO can vary significantly over the course of a year. The best use of this key performance indicator is as a measure of efficiency of the A/R process, indicating length of an organization's operating cycle.

In general, if your company's DSO is no more than 10- 15 days longer than terms of sale, the receivables are turning into cash without much difficulty.

The most common calculation:

(Ending Total Receivables / Credit Sales for Period Analyzed) X Number of Days in Period

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Collection Effectiveness Index

Another useful tool in AR management is the Collections Effectiveness Index (CEI). CEI is a metric many organizations are looking at to evaluate the effectiveness of their receivable management process.

CEI focuses on the quality of collection efforts over time by determining the percentage of open receivables an organization is able to recover or resolve within a given time period.

CEI can also provide valuable insight into the strength and administration of an organization's credit policy. The higher the CEI, the more likely the organization is making sound decisions based on well- constructed guidelines. As CEI drops, organizations should re-examine their credit policy, as this may be an indication that they are extending credit to companies that are not truly creditworthy.

The formula for calculating CEI:

(Beginning Receivables + Credit Sales - Ending Total Receivables) / (Beginning Receivables + Credit Sales - Ending Current Receivables) X 100

"First they ignore you, then they laugh at you, then they fight you, then you win."

Mahatma Ghandi (1869-1948)

Mohandas Karamchand Gandhi was born in 1869 in India and was murdered in 1948 by the fanatic Hindu Nathuram Godsey. Gandhi was a Hindu as well and born in the second highest cast. Hindus hold the belief that people get born in a cast in which they stay their whole life. When their behavior according to the religious rules of Hinduism is good they get in a higher cast in their next life.

However, I think we can take Gandhi's words, originally meant to fight oppression and inspire non- violent opposition to political supremacy and use them word for word to describe some of our debtors. The tools that we the credit industry have at our disposal should be used to neutralize these debtors. Remember Pareto's Principal, the 80/20 rule. Don't let 20% of your client base consume 80% of your staff's time. Consider outsourcing to a reputable third party.

David Ward, CEO