A Scorecard to Improve Cash Flow

Many people think that keeping a scorecard is tedious, even unnecessary. By keeping a scorecard it can help individuals and teams discover ways to change or improve processes to increase a task’s effectiveness.

Past Due ScorecardFor example, in a scorecard that I use at CMOE, Invoice to Payment, we measure the number of days between when an invoice is sent to a client and the day we received payment.  Most of our clients pay within thirty to forty days.  However, by monitoring the scorecard daily, I noticed that some of our clients were taking to up five months before they paid the invoice.  This made the performance line fall above the target goal of 35 days on our scorecard.  My question was why?

What was happening?
A couple of things came to the surface when I talked with a specific handful of companies about why it was taking so long for us to receive their payments.  The first response usually was that the Accounts Payable team was not getting the invoice.  Were the invoices lost in the mail, or buried on someone’s desk?  We began e-mailing all invoices and past-due notices directly to the person who placed the order in addition to Accounts Payable.  For some reason, people respond more quickly to e-mails.  Almost immediately, I started to get e-mails instructing me on how these companies preferred to have invoices submitted.   Getting the invoices to the right parties made a big difference in the time between invoicing and receiving payment.  International invoicing was entirely another problem.  Through trial and error, we found that by simply adding bank information as a mandatory item to every international invoice, the clients were able to get payments to us in a much more efficient manner.

The End Result
Overall, the average payment score went from 58 days to 28 days in a matter of eight months– that’s Thirty days of improvement!  You may ask, “Why didn’t the AR Aging report say the same thing as a score card?”

Why a Scorecard?
I worked with a biweekly report for three years in order to decrease the number of outstanding invoices.  In 2010 the average still seemed high.  The score card diverted my attention from the number of outstanding invoices to the number of days between invoice took to be paid.  The visual reminder of a scorecard also motivated me to think about this issue on a daily basis and prompted other team members to get involved.  I don’t know if thirty days will make a big difference to your company, but to our Regional Vice Presidents 30 days was huge.  Improved cash flow and the use of measurements allowed them to make more accurate strategic plans for the company.

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About the Author

Martha Rice