How to Build and Effective Accounts Receivable Management Team

How Many Employees Do I Need for Effective

Accounts Receivable Management

A Guide to More Effective Accounts Receivable Management

2 Many Employees Do I Need to Effectively Manage Accounts Receivable

Share this white paper e2b teknologies | 4403524700 | wwwanytimecollectcom

Contents Introduction 3

Part-Time AR Clerk 4

Full-Time Credit Manager 5

Benefits of Automation 5

Accounts amp Invoice Volume 6

Invoice Complexity 7

Small Company Considerations 7

Invoice Presentment amp Payment Automation 8

Automated Efficiency 9

Prioritize Efforts 10

Real-World Case Studies 10

Conclusion 11

About e2b teknologies 12



Introduction

As the publishers of Anytime Collect credit and collections management software we work with a

variety of companies We have experience with small companies at around one million dollars in

revenue who are using Intuit QuickBooks up to enterprises managing hundreds of millions of dollars

utilizing enterprise ERP business software No matter the size of the business or which accounting

system they are using many of our customers ask us the same question

ldquoHow Many Employees Do I Need to Effectively Manage Accounts Receivablerdquo

Our customers are engaged in a wide variety of industries including wholesale distribution

manufacturing construction medical services legal services professional and consulting services and

others no matter which industry they work in the question has always been the same They ask hoping

for one simple formula to figure out how many employees they need to effectively manage their

accounts receivable credit and collections activities Unfortunately there is no such formula The

answer to this question depends on several factors such as invoice complexity account and invoice

volume invoice presentment and others This white paper was written to help you understand those

factors so you can answer this question for yourself



Part-Time AR Clerk One way to evaluate your credit staffing needs is to

consider revenue per employee For example recent

reports indicate that SampP 500 companies generate

approximately $420000 in revenue per employee Smaller

companies however often generate significantly less

revenue per employee ndash usually around $100000 per

employee depending on the industry The reason for the

huge discrepancy is simple ndash larger companies have

established credit policies access to automated systems

and full-time dedicated staff with advanced credit and

collections experience

Net revenue per employee will vary significantly by industry But the credit department is still

responsible for managing the collection of this revenue whether it resulted from 10 customers or 10000

customers We generally see that most companies have at least one part-time accounts receivable clerk

when they reach approximately $1 million in annual revenue Since average DSO is 61 across industries

this means that this part-time resource is managing about $188000 each month of which over $70000

is likely past due

Smaller companies who have around 10 full time employees on staff typically have at least one part-

time accounts receivable clerk This person usually reports directly to an Accounting Manager or to the

President who also participates in the credit and collection process for more complicated customer

disputes This person is usually the backup for the AR clerkrsquos in cases when he or she is unavailable



Full-Time Credit Manager There are efficiencies to be gained when a company grows because the credit team has more focus on

their specialized tasks A full-time accounts receivable position is typically created when the company

starts to approach $5 million in annual revenue Hiring a full time employee can be as early as $3 million

in annual revenue in industries with high volumes of low-margin invoice transactions across a large

customer base or closer to $10 million in annual revenue for businesses with a lower volume of high

margin invoices for fewer customers

Based on our experience companies generating $3 million to $5 million in annual revenue will generally

have 30 to 50 employees one of which will be a full-time credit and collection manager

These general recommendations assume that the employee is manually managing the entire accounts

receivable credit and collections process without specialized software to help them automate their

tasks Note Microsoft Excel spreadsheets aging reports and CRM systems do not count as credit and

collection management software as they have no automation to help the collector to prioritize their

activities nor do they provide automated customer notifications

Benefits of Automation Companies that utilize specialized credit and

collections management software can just about

triple their efficiency per credit and collection

employee Automation allows them to cut back

on time spent prioritizing their activities and more

time focusing on outbound calls and resolutions

to open disputes

Paystream Advisors conducted a study in 2013

which showed that companies using automated

collection software spent only 6 of their time

prioritizing their activities compared to companies without automated software which spent 15 of

their time prioritizing their activities The study also shows that automated collection software users

spent just 6 of their time preparing for calls with customers while non-automated companies spent

another 15 of their time preparing for their calls

Specialized credit and collections software helps businesses spend 62 of their time soliciting customers

for payment while non-automated businesses spent only 20 of their time actually communicating with

their customers Those who use credit and collections software are more effective in their collections

activities due to a higher volume of communication with customers



The end result for automation is staggering as there is a direct correlation between time spent

communicating with customers and a companyrsquos DSO It can be generalized from this study that the

more communication a company has with their customers the lower their DSO tends to be

Accounts amp Invoice Volume As mentioned previously the size of your credit

department may be dependent not on revenue per

employee but rather on revenue per active customer

account or on the number of invoices managed each

month This makes a lot of sense when you think about it

To illustrate letrsquos consider a capital equipment

manufacturer who sells 20 machines a year to less than 20

customers They can probably manage their accounts receivable much easier than a distributor of

commoditized products producing the same annual revenue but at much lower margins The distributor

might have thousands of invoices and thousands of customers compared to the manufacturer

According the CRF report ldquoOn Whose Termsrdquo 39 of business invoices are past due If we assume that

each of these will require some action from the credit professional then we can back into the workload

for companies based on the number of invoices they manage on an annual or monthly basis

A well-trained credit and collection professional will be able to resolve most issues in a short-period of

time (perhaps as fast as 30 minutes) but they will inevitably have to manage more complex disputes and

difficult accounts that could require many hours or days of effort It is safe to assume that it probably

takes at least 30 minutes (probably much more) to resolve non-payment issues

This means that a company generating 1000 monthly invoices likely spends close to 100 hours per

month managing past due accounts or the equivalent of about 12 days per month This more than half

of the available work days in the month and the credit professional typically has other responsibilities

within the organization such as invoice creation cash application credit risk analysis etc

It is therefore safe to estimate that most companies should staff at least one full time credit professional

for every 1000 invoices created each month (or at least one part-time employee for 500 monthly

invoices) ndash especially if they are not using software for invoice delivery or collections automation The

same principle holds true if they are managing 500 to 1000 active customers per month assuming that

each customer has 1-2 open invoices each

For each full-time credit employee a company will also need to have a back-up resource as well as a

supervisor These positions do not necessarily facilitate a full time position but are important

considerations in respect to responsibilities for other staff members inside and outside the credit and

collection department



Invoice Complexity Another factor that will affect your staffing

considerations is related to the products and

services you provide and the complexity of the

invoice and the payment process For example a

wholesale distributor could have a relatively cut-

and-dry invoicing process The customer

purchases a product and they deliver it Assuming

that they delivered the right product free from

defects and the invoice was accurate there should be few legitimate reasons for non-payment

However manufacturers construction firms and professional service providers often donrsquot have a

simple product or service Customers will dispute the invoice due to product quality defects delays or

issues related to the job or because there is no supporting documentation to support billable consulting

hours on the invoice

The more complex your product or service the more likely that you will encounter increased disputes

that will take more time to resolve with internal resources and interaction with various contacts in your

customersrsquo organization

Small Company Considerations



A study conducted by Credit Today indicated that 25 of credit departments do not have adequate staff

to manage their workload The study indicated that smaller companies with 3 or less credit professionals

felt they were understaffed compared to companies with 45 full time credit professionals who that felt

they were adequately staffed The study also broke out responsibilities for those full time staff members

based on the activities they were responsible for managing

This study is consistent with our research as we find that smaller companies who are more focused on

generating revenue though product development sales services human resources or other aspects of

the business are much less efficient or proficient in managing their accounts receivable Due to their

focus on other critical tasks accounts receivable is not a priority until it starts to affect cash flow and the

companyrsquos ability to pay its employees or to secure working capital for investments in equipment

personnel expansions or other initiatives

Invoice Presentment amp Payment Automation According to a Credit Today study companies that utilize automated electronic invoice presentment and

customer self-service online payment solutions are much more efficient than companies that manually

send invoices and process customer payments themselves This makes sense since the process of

creating and printing (or emailing) an invoice is time-consuming and processing customer payments

during phone calls can also consume a considerable amount of time

Credit Today produced a Staff Benchmarking Survey in 2010 that may be useful to help you identify the

correct staff size for your organization The study is $295 but is a valuable resource as it breaks down

staff size by annual revenue across various industries by the number of active accounts and by the

number of invoices created each month



Automated Efficiency Lifersquos not fair and neither is business In most cases small businesses are not adequately staffed to

properly manage accounts receivable On average most businesses offer customers 28 day credit terms

but average days sales outstanding is 67 That means most business customers are taking more than

twice as long to pay than the terms yoursquove extended to them

To be brutally honest in most of these cases the reason for non-payment is your fault The invoice was

sent too late for them to pay you on time was missing a purchase order was sent to the wrong person

or address and had the wrong price the wrong billable rate or incorrect tax or freight amounts These

mistakes are easy to address if you have adequate staff to review first-time invoices to new customers

to ensure that the problem is resolved and that it doesnrsquot happen again

Systems like Anytime Collect are now available to automate reminder notices to customers when they

have invoices that have an open balance that will be due in the next few days Sometimes sending a

reminder is effective in prompting the customer to notify you of issues on the invoice or reasons why

they payment will be late which gives you an opportunity to address issues or disputes proactively

ldquo Most businesses offer customers 28 day credit termshellip

But average days sales outstanding is 67 rdquo



Prioritize Efforts The Pareto Principle a common rule of thumb that states many

events roughly 80 or the effects come from 20 of the causes

applies in most businesses where 80 of revenue comes from just

20 of customers If you have 1000 customers that means that

probably only 200 of them represent 80 of your revenue and

80 of your past due receivables

Systems like Anytime Collect can help you prioritize collections

based on this information You may want to assign those 200

accounts to someone who can focus on them exclusively and then

use the automated system to help manage the remaining 800 customers (20 of your past due

revenue) By prioritizing you can keep your lower priority accounts from slipping while your focus is

elsewhere

Real-World Case Studies Systems Maintenance Services is a professional service firm with 600 employees supporting over $150

million in revenue Revenue came from 2000 active enterprise accounts The company was managing

over 3000 monthly invoices which were very complex spanning months to years for the services they

provided with many invoices having thousands of line items Despite their best efforts the companyrsquos

four full-time collectors were struggling to manage their accounts receivable which resulted in a DSO of

67

The collectors had a hard time prioritizing their accounts they wasted time researching account and

invoice information prior to a call and they had erratic collection efforts with no easy way to balance

collector workloads

Revenue per employee was around $250000 Revenue per customer was $75000 and average invoice

amounts were upwards of $4000 To effectively manage the workload they probably should have had at

least double the staff

Systems Maintenance Services implemented Anytime Collect in 2012 and gained significant efficiencies

in their credit and collections processes without having to hire additional employees In the first year

they were able to reduce DSO to 40 days (excluding just two of their difficult accounts) Thatrsquos a 40

percent reduction in DSO meaning that Systems Maintenance was getting paid 27 days faster than the

previous year ndash almost a full month faster During this time the company continued to grow adding

another 1000 customers without expanding its staff In fact the company was able to reallocate half of

one employeersquos time to other more critical business activities

Check out this YouTube video to hear from Systems Maintenance Services themselves



Conclusion There is no easy way to determine the right number of staff for most credit and collections departments

until your company evaluates each area of the business ndash revenue per employee invoices per month

number of active accounts complexity of products and services and other factors While every

company is different almost every business can be much more effective in managing accounts

receivable which is one of the largest assets and sources of working capital

e2b teknologies makers of Anytime Collect can help by providing assistance to help you define your

specific business requirements We can also help you to understand the benefits that automation can

have on your business in respect to reductions in days sales outstanding increases in collection labor

efficiency reductions in bad debt write-offs and other savings Our customers typically realize

Average reduction in DSO of 12 days

Average of 20 reduction in bad debt write-offs

Return on investment in about 2 months

Anytime Collect is licensed per named user The software is available for purchase or as a low annual

subscription and can be installed on your local server or hosted online There are typically 2-3 Anytime

Collect users for every full time employee in the credit department when you include their supervisor

and their immediate back-up

For more information about Anytime Collect or for a personal assessment of your accounts receivable

credit and collections staffing and business needs contact us today by visiting the Anytime Collect

website or by calling 4403524700

A free ROI Calculator is also available to help businesses to quantify the

return on investment that is possible through accounts receivable credit

and collection automation



About e2b teknologies e2b teknologies is a Microsoft Managed Partner providing cloud-based business software applications

and business services to progressive businesses worldwide e2b anytime apps is the publisher of

Anytime Collect Anytime Commerce Anytime Supply Chain and related Anytime brand products e2b

enterprise develops custom cloud-based business applications and resells leading ERP accounting

software CRM and other enterprise business software applications



Contents Introduction 3

Part-Time AR Clerk 4

Full-Time Credit Manager 5

Benefits of Automation 5

Accounts amp Invoice Volume 6

Invoice Complexity 7

Small Company Considerations 7

Invoice Presentment amp Payment Automation 8

Automated Efficiency 9

Prioritize Efforts 10

Real-World Case Studies 10

Conclusion 11

About e2b teknologies 12



Introduction

































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elsewhere






67



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is likely past due


























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67



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67



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67



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67



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Documents

How to Build and Effective Accounts Receivable Management Team