23 S.M.A.R.T Credit and Collections Goals

CONTENT

Chapter 1

Defining Credit & Collections Goals

Chapter 2

How To Set S.M.A.R.T Goals?

Chapter 3

Summary

Chapter 4

About HighRadius

Chapter 01

Defining Credit & Collections Goals

The primary goal for the credit and collections department is to turn open invoices into cash, therefore increasing the cash flow while mitigating credit risk. Within onboarding a customer and collecting past-dues from them, credit and collections professionals go through the havoc of dealing with an exhaustive task list.

Reducing DSO and mitigating credit risk are long-term goals. Credit and collection teams should break their long-term goals into multiple short-term goals, these short-term goals could be tracked easily and would help them to see the bigger picture.

Here’s a list of 23 such objectives and smart goals for credit and collections, each one being the compartmental building block of the whole process:

Credit Onboarding Automation and Controls

Provide a customizable credit application portal for new customers that requires the documentation and a customer appropriate credit application be completed accurately prior to submission to the credit department.
Automate approval policies using credit scoring models
Automate the acquisition of trade and bank references.
Lock in a process for acquisition and retention of sales resale certificates and renewals. Consider a third party service.
Define a criteria and implement credit scoring and approval models.
Ensure the onboarding process ensures fraud prevention.

Conduct Credit Line Reviews Proactively

Understand the sales initiatives by channel, product line and region and ensure that credit lines are available to meet revenue goals.

Update Credit Policy

Review and adjust the current credit policy to include:

Information sources and benchmarking
Credit scoring
Escalations for exceptions workflow and approval
Alternative to open unsecured terms
Credit hold and release
Develop on-the-shelf solutions to mitigate risk when collateral or some form of guarantee is needed to get to yes.

Lead Initiatives to Automate the Collections Process

Implement collection strategies based on customer data and credit risk.
Identify root cause of collection delay issues.
Resolve aged receivables before they become an escheatment issue.

Implement an Effective Credit Hold Process: Use the Credit Hold Process as a Last Resort

Review and adjust the current credit policy to include:

Implement collection strategies based on customer data and credit risk
Identify root cause of collection delay issues.
Resolve aged receivables before they become an escheatment issue.

Focus on Process Improvement

Identify root cause issues driving errors in invoicing, shipments and cash application.
Lead cross-functional efforts to bring process improvement

Initiate a Supply Chain Risk Assessment Policy and Procedure

Support the Sales and Cash Forecast by Managing Cash Inflows and Outflows by Coordinating and Bringing Transparency to Collections and Accounts Payable.

Work with Other Stakeholders to Establish Cross-Functional Targets for:

Collections performance
Dispute Management
Accuracy of the Cash Forecast

Establish Performance and Efficiency Targets for the Credit Collections Department and Staff:

Credit review and decision turnaround
Collections performance
Timeliness and accuracy of Cash Application
Deduction Management

Review the Accuracy of the Company’s Customer Master

Remove dormant accounts
Eliminate “Bill To” redundancies
Separation of duties setting up Customer Master records to avoid potential fraud and embezzlement

Take a Proactive Role in Reviewing and Signing off on Vendor Agreements

Understand any administrative requirements that could lead to penalties being assessed by the customer.
Check that the terms are in line with your company’s terms.
Verify that the Law and Venue clause is acceptable
Verify that dispute resolution is in line with your company policy: (Jury or Judge Trial, Arbitration, Mediation)

Ensure Credit and Collections Staff are Well Trained in the Various Laws and Regulations Related to Their Function:

Robinson-Patman Act
Sherman Antitrust Act
Equal Credit Opportunity Act (ECOA)
Fair Credit Reporting Act (FCRA)
Fair Debt Collections Practices Act (FDCPA)
FCPA
Unclaimed Property (Escheatment)
State and Online Sales Tax
Incoterms 2020
Bulk Transfers
Customer Bankruptcy: Prior and Post

Develop and Implement Incentivizes and Morale Building Activities for Credit and Collections Staff on a Limited Budget

Review the Current Cash Application Process and Leverage Automation to Reduce Expenses

Create a Schedule for Onsight Customer Visits to Key Accounts and Accounts of Concern

Review Credit Card Security Procedures and Fees. Take Actions to Reduce Risks and Costs, Including Taking Advantage of Recent Changes in Surcharge Rules.

Develop a Policy to Mitigate the Impact of Customer Payment Terms Pushback, when a Major Customer Unilaterally Extends Payment Terms Beyond Their Original Agreed-To Terms.

Review Calculated Expected Credit Loss (CECL) Requirements and Adjust Bad Debt Reserve Calculations

Regular Tracking A/R Performance

Implement Continuous Training and Education of Credit Management and Staff:

Related to the department’s role in the Order to Cash Cycle.
Treasury
International Business

Elevate the Skillset of Your Team

Create a High Performance Culture Throughout Your Team

Chapter 02

How To Set S.M.A.R.T Goals?

The S.M.A.R.T method is an excellent approach to setting achievable accounts receivable goals and objectives because it covers all bases and leaves no room for errors.

S.M.A.R.T stands for:

Let’s dive deeper to understand what every parameter in smart goals for accounts receivable stands for and how exactly they would help to attain your credit and collections goals:

1. SPECIFIC

MAKE THE GOAL QUANTIFIABLE

First thing is to specify the goal by making it tangible. Without specificity, the goal is a lot more like a dream than an actual goal. In addition to making it quantifiable, you want to answer the following questions:

What do I want to accomplish?

Why is this goal important?

Who is involved?

Where is it located?

Which resources/limitations are involved?

2. MEASURABLE

DETERMINE METRIC[S] TO TRACK PROGRESS

Your goal must be measurable so you can track progress, stay motivated, and recognize when you have achieved it. A measurable goal should address questions such as:

How much?

How many?

How will I know when it is accomplished?

3. ATTAINABLE

ENSURE IT IS WITHIN THE REALM OF POSSIBILITY

Setting a specific and measurable goal is all well and good, but if it’s not realistic then its a waste of time, and will only lead to Disappointment.

Therefore, you must make sure that the goal is actually attainable given your unique circumstances.

An achievable goal will usually answer questions such as:

How can I accomplish this goal?

How realistic is the goal, based on other constraints, such as financial factors?

4. RELEVANT

DETERMINE HOW THE GOAL IS CONNECTED TO SOMETHING BIGGER

This step is about ensuring that your goal really matters to you, and that it aligns with other relevant goals.

You should answer the following questions to ensure your goal is relevant:

Does pursuing the goal seem worthwhile?

Is it the right time?

Am I the right person to reach this goal?

How is this goal connected to other goals?

5. TIME-BOUND

SET A DEADLINE

The final piece of the S.M.A.R.T jigsaw – making the goal time-bound.

The reason why your goal should be time-bound is relatively self explanatory, because every goal needs a target date; a deadline to work towards.

In order to make your goal time-bound you should answer the following questions:

23 S.M.A.R.T Credit and Collection Goals

What's Inside?

Defining Credit & Collections Goals

Credit Onboarding Automation and Controls

Conduct Credit Line Reviews Proactively

Update Credit Policy

Lead Initiatives to Automate the Collections Process

Implement an Effective Credit Hold Process: Use the Credit Hold Process as a Last Resort

Focus on Process Improvement

Initiate a Supply Chain Risk Assessment Policy and Procedure

Support the Sales and Cash Forecast by Managing Cash Inflows and Outflows by Coordinating and Bringing Transparency to Collections and Accounts Payable.

Work with Other Stakeholders to Establish Cross-Functional Targets for:

Establish Performance and Efficiency Targets for the Credit Collections Department and Staff:

Review the Accuracy of the Company’s Customer Master

Take a Proactive Role in Reviewing and Signing off on Vendor Agreements

Ensure Credit and Collections Staff are Well Trained in the Various Laws and Regulations Related to Their Function:

Develop and Implement Incentivizes and Morale Building Activities for Credit and Collections Staff on a Limited Budget

Review the Current Cash Application Process and Leverage Automation to Reduce Expenses

Create a Schedule for Onsight Customer Visits to Key Accounts and Accounts of Concern

Review Credit Card Security Procedures and Fees. Take Actions to Reduce Risks and Costs, Including Taking Advantage of Recent Changes in Surcharge Rules.

Develop a Policy to Mitigate the Impact of Customer Payment Terms Pushback, when a Major Customer Unilaterally Extends Payment Terms Beyond Their Original Agreed-To Terms.

Review Calculated Expected Credit Loss (CECL) Requirements and Adjust Bad Debt Reserve Calculations

Regular Tracking A/R Performance

Implement Continuous Training and Education of Credit Management and Staff:

Elevate the Skillset of Your Team

Create a High Performance Culture Throughout Your Team

How To Set S.M.A.R.T Goals?

S.M.A.R.T stands for:

1. SPECIFIC

What do I want to accomplish?

Why is this goal important?

Who is involved?

Where is it located?

Which resources/limitations are involved?

2. MEASURABLE

How much?

How many?

How will I know when it is accomplished?

3. ATTAINABLE

How can I accomplish this goal?

How realistic is the goal, based on other constraints, such as financial factors?

4. RELEVANT

Does pursuing the goal seem worthwhile?

Is it the right time?

Am I the right person to reach this goal?

How is this goal connected to other goals?

5. TIME-BOUND

When is the final deadline to achieve this goal?

What can I do six months from now?

What can I do six weeks from now?

What can I do today?

Summary

Learn how you can Increase cash flow, improve worklist prioritization and reduce DSO through AI Powered Collections Management Solution

About HighRadius

Related Resources

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Credit And Collections Policy Basics – Everything You Need To Know

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