The management of credit and collection risks requires the management of a set of monitoring and reporting reports that will enable the activity to be led efficiently and effectively and the right decisions to be made in real time at all administrative levels – starting from the senior management, through the credit risk and collection manager and the managers subordinated to him, to the activity managers and their employees (service, sales , logistics, operation, etc.).
In this chapter, the logic of the reporting system will be presented according to our concept, but this logic is neither rigid nor binding. To the best of our knowledge, there is no professional body that determines the accepted reporting standards in the world of credit and collection (with the exception of related accounting principles). Therefore, we will describe what, in our opinion, the reports required from the credit and collection system should be, and we will be happy to continue the task by holding a professional and public discussion with those concerned on the group forums.
It is important to distinguish between three levels of reporting: reports to management and shareholder representatives; reports to the CFO and the credit risk and collection manager; reports to the managers of operational activities (collection, credit control, cash register, legal collection).
As part of this chapter, we will refer only to the macro reports for senior management as well as the main reports intended for the credit and collection risk manager. The necessary reports for the managers of the operational departments were brought in each of the chapters dealing with the various activities.
Before going into the definition of the reports, we will refresh our memory in the introduction chapter and the methodological framework.
Key indicators for credit and collections management
Back to the methodological framework
In order to achieve the goals and objectives that we set at the beginning of the book, we must return to the methodological framework and derive from it guidelines for building a reporting system, which will make it possible to ensure the overarching goals of the organization and the main goals of credit and collection.
We will again bring diagram 8: the methodological framework for managing the organization’s credit and collection systems presented in chapter 2 and translate the theoretical guidelines into a system of goals and indicators that will serve the credit and collection risk manager in the performance of his tasks.
Control of the degree of achievement of the organization’s super goals
The Overarching goals that the organization sets for the collections function:
- Profitability
- Cash flow.
- Customer retention
These overarching goals can be linked to performance indicators that will help us verify their achievement:
| Overarching Goal | Performance Indicators |
| Profitability | The total costs of credit and collection The bad debt expense rate from the annual sales turnover |
| Cash flow | Debtors in terms of days sales outstanding (DSO – Days Sales Outstanding) The ratio of overdue debts from the annual sales turnover The ratio of doubtful debts from the annual sales turnover |
| Customer retention | Customer satisfaction on credit risk management and collection processes The number of customers with whom relationships were terminated because of the credit risk management and collection processes |
Control of compliance with the main objectives
Also, we would like to translate the main objectives of credit and collection into some performance indicators:
| Overarching Goal | Performance Indicators |
| Collections volumes | The collection percentage from the sales turnover Total outstanding debt New debts in arrears The collection rate from all new debts Legal collections |
| Cost of collections | Collection operations Payment’s processing Credit terms (the cost of working capital invested in debt) Legal collections |
| Quality | Credit portfolio risk The quality of the sale Collection per representative The number of clients undergoing legal proceedings The quality of the legal proceedings by external lawyers |
Further on in this chapter, we will build a proposal for three reporting systems suitable for each of the management levels. For each index that we propose, we will indicate the overarching goal or the main goal that it serves.
Although there is always the possibility of managing the report according to the general tables above, that is, according to the division of overarching goals and main objectives, reality requires that the reporting structures be as close as possible to the operational activity that they describe, and therefore we decided not to compile the operational tables according to the schematic tables, but Link each index directly to its contribution to the macro management of the activity.