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Debtors Analytics

Managing debtors is a key function of any business – not only in terms of minimising debt write offs, but giving due consideration to the cost of financing those debtors and the working capital to support it.

In many businesses, margins are very tight and every aspect of the business must be closely managed and controlled to ensure ongoing profitability. This is fundamental to good business generally, as is the accurate assessment of profitability in transacting with key customers. The financing of debtors is often a hidden cost and is seldom considered in routine customer margin analysis. Financing costs will obviously vary according to payment terms, but they will also be impacted by a customer’s compliance to those terms. A fact based approach to including financing costs in profitability analysis may reveal that marginal customers no longer meet internal profitability goals, or worse still, are negative contributors to margin.

Not only does the financing cost impact on profitability, delinquency can and does impact the ‘bottom line’ in a more pervasive manner. Reducing the risk of delinquent accounts must go beyond the standard review of the debtors ledger and the focus on aging reports. A more strategic and high level analysis is fundamental to proper risk management.

As a business owner, financial controller, or credit manager, can you answer these questions:

  • Do you have high level visibility on customer payment performance?
  • What % of your debtors are non-compliant to terms?
  • How badly ‘out of terms’ are these debtors on average?
  • Is total debtor performance improving or deteriorating? What about individual customers?
  • Do you pro-actively manage your debtors payment terms, or do you act when it is too late?

With some simple and effective analysis of your debtors ledger, you can answer these questions and take back control.

Collaboration with Puma Energy

In the fuel Industry, margins are wafer thin and debtor delinquency is commonplace. Goe Pafumi, Regional Credit Manager (Australia/Asia), Puma Energy, recognises the risks and is managing his debtors using a recently implemented Business Intelligence (BI) solution whilst calling on his 25 years’ experience in credit management.

In collaboration with QMetrix, Goe has customised a debtors analysis solution that gives Puma control over their debtors ledger. Whether it be informed decisions in day to day management of the ledger and necessary courses of action, or high level decisions on changes to key account credit terms. The knowledge garnered from his debtors analysis also feeds other areas of the business such as account management and pricing decisions. Longer term, harnessing this capability will undoubtedly impact business profitability in a positive manner and drive ROI many times beyond the initial cost of implementation.

This customised analysis allows Goe to:

  • Analyse which of his debtors’ payment performance is slipping and how quickly
  • Identify for a specific customer or overall, the average days to pay and % compliance, with the ability to drill down to detail invoices when required
  • Analyse key metrics by credit terms, account manager or industry segment
  • Choose a period range for analysis and a historical comparison period (whether it be months or years)
  • Chart the performance of key debtors month by month to visualise performance metrics
  • Set alerts or exception based reporting to focus analysis on the critical problem areas

Further exploration of the possibilities in this area might be the use of dashboards that summarise critical information and trends in debtor KPIs that can be analysed in greater depth at the click of a button.

Summary

QMetrix has worked for over a decade in BI and it is common place to see businesses restrict the focus of BI implementations to sales, inventory and the general ledger. However, it seems the debtors ledger could indeed be the last frontier that enables businesses to squeeze an extra basis point or two into their margins and profitability. Debtor delinquency aside, more accurate assessments of true customer profitability that include debtor financing costs is invaluable for both the sales and finance functions. It is no coincidence that whilst the lack of focus on decent analytics on the debtors ledger remains, debtor management will continue to be one of the least well managed components of a business.

Call us on 1300 785 336 or email us to get in touch and learn how QMetrix can help your organisation with debtors management using analytics.