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3 Ways to Improve Collection through Accounts Receivable Team Incentives

##receivables, #DSO, #accountsreceivable October 25, 2016

Want to get more from your accounts receivable team? Try offering incentives. Many companies have successfully implemented the following three programs, typically on a quarterly basis.

Actual Collection Dollars

If you are looking for increasing the number of dollars collected, offer incentives based on number of dollars collected. It gives your staff a number they can focus on every day or week. Simple daily goals to focus on will keep your team motivated, because they have some direct control over the amount of their bonus.

funnel

Target DSO

If your DSO needs help, consider offering bonuses for reducing your DSO for the next quarter. Set a target that’s reasonably lower. Goals that are too high tend to demoralize rather than motivate. For example, if your DSO is at 50 days, offer a bonus if your team is able to reduce it to 45 days. If you want to get really aggressive about it, offer more for stretch goals, maybe even additional compensation if DSO is lowered to 40, 35, or 30 days.

Maintaining DSO

Similar to the previous idea, except that your team has worked hard to reach a great DSO, and should be rewarded for maintaining that standard of excellence. Give your team props for consistency, especially if what they're doing is working.

Calculating DSO

Days sales outstanding (DSO) is the average number of days it for a business to collect payments for invoices. DSO is typically calculated based on the last 30, 90 or 365 days. To calculate DSO divide the amount of paid invoices to the during a given period by the total value of credit sales during the same period (i.e. paid invoices/open invoices over the last 12 months) and multiplying the result by the number of days in the period measured (365 days if using 12 months).


 

About the Author
Casey Griswold

Casey Griswold

Armatic Co-founder and CRO

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