Hey Thea,
What is a healthy percentage over 90 days? I have tried to find good benchmarking information for our industry, but have come up short. Not much on benchmarking of what “healthy” looks like in our industry for over 90 as a percentage in comparison to total AR. Can you help me?
— Benched in Marking
Dear Benched,
One look at social media makes it very clear that everyone’s view of “healthy” is different. Everyone’s got a different opinion and viewpoint based on their experience, industry knowledge, and company culture. Benchmarking in our industry is a tough find. The Credit Research Foundation (CRF) puts out some of the best data you can find, along with the National Association of Credit Managers (NACM).
Looking for detailed, industry-specific data gets dicey. Every credit manager I know has some set of numbers in their head, and it may change based on where they are working, the economy, the directive, and how detailed and energetic they are in information gathering.
Having added the disclaimer that acceptable is subjective and taking a number of factors into account—payer mix, litigation, unresolved claims, how quickly you write off bad debt or how reactive you are to customers who can’t figure out how to pay within terms—15%-20% of total AR is considered “acceptable,” and 5%-8% is considered “good” for a very healthy AR as a standard.
“Really?” you may say, “That sounds high.” I equate 15%-20% as “acceptable” to generic red wine at a conference. Yes, it may be drinkable and I may accept it, but as soon as I get the latitude to change it, I am making adjustments to improve (in my case, going out-of-pocket at the hotel bar). If 20% of my AR, for whatever the reason, is in the 90+ column, what does that do to the remainder? What story do those columns tell? How “healthy” is that really?
Your overall bucket numbers are another indication of how well your AR portfolio is performing as a whole. If 20% is “acceptable,” then every other bucket has to be zero for my team to achieve 80% current. “That’s acceptable,” said no CFO or self-respecting credit person EVER!
Looking at the process or procedures around your collection and bad debt practices definitely factors in. If you never write anything off or accept that something is not collectible, then it is occupying a permanent place on your AR in the land of “hope as a collection tool,” which is collected in the month of Never-ary.
The challenge is drilling down to industry specific solid benchmarking numbers that are useful. Why is that so hard to get? Benchmarking numbers come from companies (this means you) sharing their accounts receivable data with an organization or company that specializes in this data. Think credit bureaus, CFM or NACM. They can only work with and report on what data has been contributed. The end result is group sic code reporting, or blanket data. And there are caveats: all industries are lumped in together; you may have to pay for it; those organizations aren’t non-profit; you have to be a member or pay to play.
Where does that leave you? Take a quick poll of your credit buddies, and look at your historical data, factor in the size of your AR dollars, the quality of your AR (that means how much garbage is on it—unresolved claims, unaccepted bad debt, etc.) Get data from your local NACM and create a benchmark to use against your goals.
You can’t get what you won’t give. Contribute. Participate. Read that again. Now go take benchmarking action.
