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We must establish a mechanism to set targets for debt collection, customer care and administrative performance, evaluate and take corrective actions on a regular basis to enhance credit control and debt collection.
Credit control is evaluated internally & externally for the target of respect, accept & use credit terms & conditions to achieve intended inflow after predetermined days of sales. Internally when responsible of sales are understanding & using credit policy in their deals with customers. Externally of course when customers accept formally their conditions of credit and adhere payments, so managerial reports as aging report reflects outstanding days consistent with credit policy, in case of delayed customer his time period after receive complete & accurate invoice could be averaged to supposed days & generally to adherent customers to get indicator for externally success of credit policy
Bottom line, always keep current outstanding to its maximum and reduce overdue to its minimum to NIL. No write offs. Minimum sales reversals. [I myself have collected100% debts withouth writing off a single penny]. We have to collect all debts within the credit period given to that particular customer. The less is the overdue outstanding, minimum write offs, minimum sales reversals, the better is the credit control performance.
In simple words it means for how many days your credit remain outstanding after its due date and how much percent it is of total portfolio.
Credit not recovered at due datee is called irregular or infected loan/portfolio. What is the percentage of such infected loans in your overall credit portfolio. When infected loan percentage is high it means that credit control performance is not good and vice verca
A typical measuring tool for credit control would be average debtor days. The smaller the number the better.
Most commonly used method to evaluate Credit Control Performance is Days Sales Outstanding or DSO. It can be calculated for a particular customer or for the whole aged debtors of the organization as well.
It is the average number of days required to realize a credit sale(s) into cash. Invoice date is commonly used to calculate DSO, e.g. if a debtor has only one outstanding invoice dated30 Sept13 and if the payment is received on10 October13,10 days is the DSO for that particular customer. This can also be calculated as an average for the debtors as a whole which is also known as Average Collection Period (ACP).
A lesser DSO implies better performance of the Credit Control Department and vice versa.
It is the most simple thing. Set target criteria and monitor the performance against targets. Target criteria can be different for different organizations keeping in view their cash flow strenght
