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Oct 01 2014
ICEL Meeting Recap: Credit Metrics
Erik Wright, CBF, Spectrum Engineers, Inc.

In September, Shane Norman, CCE from Wheeler Machinery, provided us with some valuable information regarding the use of Credit Metrics and reasons why and how they are tracked.  Whether we were seasoned veterans or new to credit, each of us left the meeting inspired to do something more to ensure we are doing all we can to protect our companies' largest asset, the receivables.


ICEL Members thoughts and comments about the meeting: 

Nina Flurer, CCE, H & E Equipment

"Shane did a tremendous job in presenting formulae and spreadsheets, without being boring. Not everyone has that skill! Using numbers like the collection effectiveness index, average days delinquent, and days sales outstanding, helps me to track the performance of my employees so that their reviews and compensation are fair. It's also helpful to have empirical numbers when you want to prove the value of the Credit Department to upper management, or if you just want to make sure your efforts are producing results. Thanks ICEL, for bringing to the forefront something every Credit Manager should know!"

Lisa Keller, CBA, Peterson Plumbing
"The biggest 'take-ways' that I had were:
     1) CEI (Collector Efficiency Index) - I had never heard of that but will definitely be incorporating it into my processes and
     2) Shane has the best wife ever :)" 

Allen Vickers, CCE, A & K Railroad Materials
 "Shane made some excellent points and even used some hands-on demonstrations so he was able to provide more than just theoretical information. If Shane had more time available, he could have also mentioned how these numbers are best understood when they are compared - and generally within your industry.

If a table full of credit managers were discussing their DSO numbers, does it mean that the one with the highest DSO number is doing a poor job of collection?" Not necessarily.

There may not be a "just right" number to use for Days Sales Outstanding. Similar to financial statements, with just one set of numbers, it would be difficult to determine if a company netting $100,000 profit last year was a good or bad thing? It would be good if they had lost $300,000 the prior year, or it would be a bad thing if they had earned $2 million the year before.

Likewise, is a DSO number of 30 days a good thing or a bad thing? The answer would depend on the terms offered and in part, the historical numbers. Good if the terms were 1%/10/Net 30, or perhaps not so good if the terms were Net 10 Days.

Although a DSO number is an indicator, it is more meaningful as a trend. A DSO of 30 days is more significant if you knew what terms were being offered; and what the prior DSO number was 12 months ago, 3 months ago, and even 1 month ago?"   

Whitney Davidson, CBF, Sunroc Building Materials
"I really liked learning about the CEI and the ratios that you can do to know what you're doing within your company and credit department. Our DSO and ratios are put together by our Corporate Credit Manager and our Controller; I was going to ask if these are being done now, and if not, if we can incorporate them."

"I thought the information was excellent. I intend to try out the CEI, but I haven't yet had a chance. I've been spoon fed a DSO calculation every month, but I really don't know what they use to calculate it and would prefer to track my own progress.

Shane Inglesby, CCE, Geneva Rock Products, Inc.
"As a result of Shane's presentation, I am planning to begin tracking the Collector Efficiency Index (CEI) beginning in 2014 and, when time permits, look backwards and at least recapture 2014 CEI information for our company. I think this will provide additional insight into our collection process and help eliminate the variable that sales introduces into DSO."

Rhonda Calwell, CBA, Komatsu Equipment
"I found the information on how to track a collector's effectiveness very informative and was encouraged to learn other methods besides DSO to tell the story of our aging! Our Credit Manager came as a guest and did work some numbers. I believe we are going to start working this (CEI) computation into our monthly report."  

As an additional benefit, Shane has made available many of these calculations in a spreadsheet for us to use. To receive a copy of Shane's Excel Spreadsheet of, email a request to GBevan@nacmint.com requesting "Credit Metrics Spreadsheet."

Thanks again Shane for providing us with a very worthwhile meeting!