Credit Research Foundation president Terry Callahan was interviewed by CFO magazine regarding the CRF Benchmarking Project. Below is the synopsis of that discussion, which should help answer any questions you have regarding our benchmarking process.
Table of Contents
- Tell me some of the background behind CRF.
- What experience does CRF have with Surveys?
- I understand that CRF performs benchmarking for the credit professional. What prompted CRF to perform this service?
- Who can participate in CRF studies; and how does a credit professional take part in the process?
- Confidentiality is critical to company’s filling out surveys. How does CRF deal with the confidentiality of the data it receives?
- The benchmarking survey is pretty comprehensive. What if a participant doesn’t understand what data you are asking for in a particular field?
- What safeguards are in place to validate the data CRF receives?
- How soon will I receive my report and how much will it cost me?
- What will my report look like and what results will I see?
- Can CRF produce any meaningful data for a credit industry trade group?
- What has been the reaction from credit executives that you have worked with on benchmarking?
1.Tell me some of the background behind CRF.
CRF is an independent, member-run organization, consisting of a dynamic community of business professionals with a vested interest in improving and fostering the field of business credit –more specifically–the practices and technologies of business credit and accounts receivable management.
With our variety of member benefits, the Credit Research Foundation provides help to the real problems and challenges credit executives face every day.
Since 1949, the Credit Research Foundation has emphasized the role of education and research activities to aid business credit, accounts receivable and customer financial managers. CRF is the foremost non-profit, member-supported, education, and research organization dedicated to the credit and financial management community.
The Foundation helps our members maintain the competitive edge required in today’s business environment through timely publications, detailed surveys (such as the statistical benchmarking) and Forums on relevant issues faced daily.
2.What experience does CRF have with Surveys?
The Credit Research Foundation has led the field of business credit in research for over 60 years. Our applied research projects are aimed toward developing more effective credit practices and techniques. On a broader basis, our studies in basic research seek to identify and quantify the impact that business credit exerts on American business and the National economy. Some of our surveys such as the National Summary of Domestic Trade Receivables have consistently been performed for over 50 years.
3.I understand that CRF performs benchmarking for the credit professional. What prompted CRF to perform this service?
In the late ‘80’s, measuring the performance of various business functions became popular. CRF members, through the activities of the Research Committee, felt it was important to establish a set of benchmarks or performance measures for credit, collection and overall accounts receivable management. We embarked on a project to develop a comprehensive and consistent methodology that could be utilized not only for recognizing a particular company’s statistical results; but also to compare that company’s data with peer businesses.
By participating in our benchmarking survey, a manager can recognize the strengths and weaknesses of his or her area of responsibility, and through this exercise, they can develop more efficient business practices related to the management of one of their company’s most valuable assets.
4. Who can participate in CRF studies; and how does a credit professional take part in the process?
All CRF members and others who have expressed an interest by contacting CRF requesting to be included in our surveys can participate. Each major survey such as the benchmarking, the quarterly National Summary of Domestic Trade Receivables, the annual bad debt survey and the compensation survey for example are open to the general public and participants will receive a report for participating.
A company can participate in the benchmarking survey anytime by going to the CRF website: www.crfonline.org and clicking on Surveys then clicking on the link for the Statistical Benchmarking Survey. Once there, you can view a sample report to see what you will receive for participating, you can take the survey on-line and you can read our statement of confidentiality that is applied to all of our data collection.
5. Confidentiality is critical to company’s filling out surveys. How does CRF deal with the confidentiality of the data it receives?
CRF’s reputation for integrity is built around the extreme level of security we maintain in dealing with sensitive data. Confidentiality is the single most important component in any of our survey programs. For example, in various questionnaires, we ask for a company’s sales volume. However, that data is used either to calculate results such as DSO or CEI or, to classify data into homogeneous categories or ranges, which is then illustrated in a report.
Often we will ask for a company’s name and contact information on a survey. That data is also never used in any report, but is used in the event that the data submitted requires us to follow-up with the participant to clarify a response.
6. The benchmarking survey is pretty comprehensive. What if a participant doesn’t understand what data you are asking for in a particular field?
There is a complete data dictionary associated with the online survey that defines the pertinent terms used in the questionnaire. Clicking on any of the field names can easily access the definitions. Furthermore, nearly every field name generates a mouse-over definition. We assigned definitions to fields to ensure analogous responses.
7. What safeguards are in place to validate the data CRF receives?
When a participant hits the “Submit” button at the bottom of the on-line survey form, two things happen that start the process in motion. CRF receives an e-mail notifying us that a company has just submitted data; and the data goes into the database for immediate validation.
In over 90% of the survey responses, the data is “good”. Meaning that 1) it has passed our Automated Judgmental Review verifying the raw data submitted and the results of calculated performance metrics are within normal ranges; and 2) all SIC data is valid and any industry credit group linkage is made. Furthermore, we validate that each data element entered or calculated does not represent a new outlier in the database. If so, we contact the submitter for verification. The bottom line is, prior to creating a report; we analyze 79 data elements to ensure integrity in our report.
8. How soon will I receive my report and how much will it cost me?
In most cases within the same day that the data is received, we can compile the data and produce the report. The reports are generated in a PDF format and then e-mailed to the contact name on the report.
The cost to benchmark with CRF is a particularly attractive feature at this time. Any company that participates by submitting their data will receive a report for free.
9. What will my report look like and what results will I see?
Each report consists of:
- 25 pages of comparative analysis
- A reiteration of the data you as the participant submitted (this helps you see the data we used for your analysis)
- A complete terminology and data dictionary that details all the definitions and formulas used in our benchmarking process.
Three sets of data are displayed in each report as shown in the sample page below. Next to each metric we illustrate your results. Then there are two groupings of data that we display based on how you want the report run. The standard report groups “All Industry” results and “SIC” results (based on the SIC that you submitted).
We can also segment the data in a variety of other ways such as by:
- Industry Credit Groups (discussed in more detail below)
- Your sales volume
- Your number of Customer
- Invoice, Check, Credit, Deductions, transaction Volume
- Your Industry (Line Of Business)
- Your ERP or primary credit and AR system
- Your primary customer type (Retailer, Manufacturers, etc)
If that’s not enough, tell us what you want to see!
There are over 150 metrics benchmarked Here are just some of the metrics incorporated into the report:
I. FINANCIAL PERFORMANCE METRICS
|DSO||Best Possible DSO||Average Days Delinquent|
|Collection Effectiveness Index||Percent Current||Percent AR Greater Than 60 Days|
|Percent AR Greater Than 180 Days||Gross Bad Debt as % of Sales||Bad Debt Recovery as % of Sales|
|Net Bad Debt as % of Sales||Deductions as % of AR $||Deductions as % of AR items|
II. CUSTOMER METRICS
|DSO||Best Possible DSO||Average Days Delinquent|
|Number of Invoices Per Customer||Number of Active Customers||Primary Customer Type|
III. DEDUCTION METRICS
|Number of Deductions Processed Per Deduction Processing Employee||Deduction Processing Costs as % of Sales|
|Deduction Turnover||Deductions Salary Per Deductions Employee|
|Deductions as % of Sales||Deduction Balances Included in AR Portfolio|
IV. EFFICIENCY METRICS
|Various costs per transaction & employee, salary for Credit/Risk, Cash Application, Collections, etc.|
V. OUTSOURCING METRICS
|Percent of Workload that is Outsourced for Credit Risk, Cash Application, Collections, Deduction processing, etc.|
VI. COST ANALYSIS METRICS
|Collection expenses||Outside Services||Outsourcing|
|Travel||Occupancy or Rent||IT Systems|
|Depreciation/Amortization||Total Cost as % of Sales, % of FTE Salary, Per Customer and Per Employee|
VII. BUSINESS PRACTICES METRICS
|% of Companies Charging Late Payment Fee||% of Companies that Accept Credit Cards|
|% of Companies Allowing Anticipation Payment Discount||% of Late Payment Charges Ultimately Collected|
|Annual $ of Credit Card Sales as % of Sales||Electronic Invoicing|
|Electronic Payments||Auto Write-off|
|Use of Auto-cash Systems including Auto-cash Hit Rates||$ Amount Shipped Automatically to New Customers with No Credit Investigation|
|% of Customers in Highest (Top Third) Risk Category|
VIII. ORGANIZATIONAL STRUCTURE / RESPONSIBILITIES
|Reporting Relationships||Where Various Functions are Primarily Performed within the Organization|
IX. SYSTEMS INFORMATION
|AR or ERP Systems Used||Use of Bolt-on Deduction Management, Collection Management Systems and Credit Scoring Systems|
10. Can CRF produce any meaningful data for a credit industry trade group?
One of the features we have built into the design of the output is a tremendous tool that provides very detailed data for industry credit groups. When a trade group wants to benchmark with us, we first assign them a 16-character identifier. Each group member enters that code in the appropriate place on the survey, which then gives us the ability to create a unique sort for that specific group. Then the fun begins!
We can produce a report for each group member that displays their individual data, the median, high and low value for the industry group and then either the median, high and low value for all of the companies in the database or for a specific SIC. Additionally, we can produce a “master” report for the group administrator that displays anonymously, the distinctive results for each metric and response for each individual group member.
But wait, there’s more…If you are the head credit person for a company that has either a decentralized credit and AR operations (where the operation of the functions is handled in various places) or for a company that has multiple business or reporting units (e.g., by product line or geographic territory) we can produce a special report that will show you as the person in charge of the overall operation, all the calculations and results for each of your business units while identifying them so that as a manager you can evaluate the performance of each individual unit.
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11. What has been the reaction from credit executives that you have worked with on benchmarking?
- One participant stated, “The survey was comprehensive and is a great analytical summary tool. Of course once you provided me with the results it became crystal clear where we stand. It genuinely provides a ‘metric comparison’ of your organization to its peers. For me it meant going back and taking a closer look a selected areas to understand why we ranked where we did and what may cause that.”
- Another stated, “We have found the benchmarking survey to be invaluable. Having benchmarks to compare to has uncovered missed opportunities. We are able to build strategies that have resulted in improved cash flow.”
- A third participant stated, “I thought the report was very informative and appreciated the good degree of participation by others in our SIC code so that comparison of key measures produced an excellent “reality check” of our efforts and progress. I also liked the comprehensive list of performance measures used so that we can measure our efforts thoroughly and spot opportunities for improvement. In short, it is a great report and will be a valuable resource for us. I encourage CRF to continue this effort on an annual basis and look forward to participating again. Thanks very much.”
- Another participant stated, “I am pleased that we participated in the benchmarking survey. There is an array of data which helps measure both the effectiveness of our Credit-A/R Dept., and the productivity. The data challenges us to perform at higher levels, and I will be interested in participate again next year. … It is an excellent management tool…I belong to two national trade groups, and I will pitch the benefit of participating to my peers in those trade groups.”
- Another stated, “Thanks, CRF, for the speed and completeness of the recent results your new benchmarking tool has provided our business divisions for performance evaluation. We’ve found tremendous value in its analysis as we achieve alignment in key processes and performance metrics between our sister Divisions, between our various Industry business groups serviced by your database and within the broad depth of your complete database as a whole. Your organization’s staff has been quick to respond with a 24 page report that has provided a means of recognizing opportunities to focus on key financial metrics for improvement. The reports have been a strong promoter of what we need to monitor and keep visible for future analysis and planning. Another great tool from a great organization!!”
- One participant stated, “After trying unsuccessfully to increase our Collections staff, I was able to add another resource based on CRF’s Benchmarking report. That was all the justification required!”