Effective management of accounts receivable
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  • 1. Effective Management of Accounts Receivable Virginia Layton, MBA Bursar Miami University
  • 2. About Miami University
    • Selective, public institution located in Oxford, Ohio, a small community 35 miles north of Cincinnati
    • 14,385 undergraduates and 1,341 graduate students on the Oxford campus.
    • Regional campuses are located in Hamilton and Middletown, Ohio, and enroll an additional 4,400 students.
  • 3. About Miami (continued)
    • Residential university with a focus on teaching undergraduates
    • One of the eight original “Public Ivys”
    • Consistently ranked as a best value among publications such as Kiplinger’s , The Princeton Review , and The Fiske Guide to Colleges .
    • Recently, the 2007 U.S. News & World Report’s “America’s Best Colleges” ranked Miami University 21st among the top public universities in the nation.
  • 4. About Miami (continued)
    • Net operating revenues in 2006 were $333,666,944
    • State subsidies declined by 15 percent between 2000 and 2005, and in 2006 they represented only 15 percent of Miami’s total revenue budget
    • We find it increasingly challenging to provide quality education at a reasonable price to students and their families.
  • 5. Background
    • Implemented all modules of Sunguard SCT Banner within a one-year period in 1999, due to a critical Y2K issue
    • Aggressive timeline stretched resources, and several processes, including billing, were still being refined at the time of implementation
    • Didn’t bill regularly in 1999-2000
    • Changed audit firms in 2002, and our new audit firm thoroughly scrutinized our allowance for doubtful accounts calculation and write-off practice
  • 6. The Problem
    • In our 2002 annual audit, it was recommended that we develop, and implement, a more aggressive write-off policy.
    • In 2003, we wrote off $1.6M in student accounts receivable.
    • Continued collection efforts on the accounts which were written off
    • Impact upon the bottom line of our financial statements that year did not go unnoticed by our Board of Trustees
  • 7. Proposed Solution
    • Continue on the path of continuous process improvement that we had begun after the successful implementation of the accounts receivable module of Banner
      • Continue with customer service improvement initiatives
      • New goal of significantly reducing outstanding accounts receivable, without compromising service to students
    • Measure our results
  • 8. Design
    • Mission Statement
    • Benchmarks, or key dashboard indictors
      • Must be relevant
      • Must be manageable/easy to produce and maintain
    • Proceed and enhance continuous process improvement initiatives, without compromising service
    • Collaborate when needed
      • Senior administration
      • Enrollment Services Team
  • 9. Implementation
    • Mission Statement
    • The Office of the Bursar maintains the financial assets of the University with integrity, while providing quality customer service delivered with respect and fairness to all internal and external stakeholders.
  • 10. Mission statement
    • Two-pronged mission – no initiative should compromise either customer service or our fiduciary responsibility
    • Kept us focused
    • Increased staff morale and satisfaction
  • 11. Benchmarking
    • Began in 2001-2002 as we tracked statistics relative to billing, payments received, late fees assessed, scholarships and financial aid awarded, etc. ( Exhibit 1 )
    • In 2003, we added benchmarks related to collection effectiveness ( Exhibit 2 )
      • Wrote off $1.6M in A/R, however we billed nearly $290M that same year
      • Ratio: 1-(A/R outstanding)/amount billed yielded an overall collection effectiveness ratio of 99.3%!
    • By adding 2004 data, we developed a list of our Top Ten Dashboard Indicators
  • 12. Top Ten Dashboard Indicators
    • Total Annual Tuition and Fees Billed
    • Total Annual Amount Billed (includes room and board, other fees, incidentals)
    • Collection Effectiveness of Tuition and Fees (1- tuition and fees outstanding/total tuition and fees)
    • Collection Effectiveness Overall (1-total amount outstanding/total amount billed)
    • Total Annual Write-offs
    • Year over year monthly aging comparison ( Exhibit 3 )
    • Receipts/payments amount and composition
    • Year over year phone calls completed ( Exhibit 4 )
    • Late fee and finance charge revenue
    • Customer complaints (to the president)
    • Year end Receivables ( Exhibit 5 )
  • 13. Continuous process improvement - Banner
    • Resumed regular billing
    • Reinstated the practice of cancelling classes for non-payment (with support of Enrollment Services Team)
    • Began assessing $100 late fee (it had been $50) and empowered all Bursar staff with the ability to waive it.
  • 14. Continuous process improvement – Banner (continued)
    • Implemented new practice of placing holds blocking future registration for balances of $500 or more
      • Collaborated with Enrollment Services Team
      • Gained support of senior administration
      • Effective tool to encourage completion of all payment plan agreements and financial aid requirements within the first sixty days of the term
  • 15. Continuous process improvement – Banner (continued)
    • Used Banner functionality to identify and manage past due accounts
      • Assessed finance charges of prime+3% to all past due accounts not currently enrolled
      • Flagged delinquent accounts
        • Collection letter-writing
        • Placement with collection agency
  • 16. Continuous process improvement – Banner (continued)
    • Delayed disbursement and refunding of financial aid overages on regional campuses
      • 10% of past due A/R was due to the return (restoration) of financial aid due to withdrawals and/or overawards
      • Worked closely with Enrollment Services Team to study the supporting data
      • Collaborative decision was made to delay disbursement on regional campuses only
  • 17. Continuous process improvement - Outsourcing
    • Unfortunately, Banner did not always provide the solutions we sought
      • In several cases, outsourcing offered competitive, cost-effective alternatives that allowed us to achieve our objectives.
      • Some actually saved the institution money, while others increased service to students at a nominal rate.
  • 18. Continuous process improvement - Outsourcing (continued)
    • Payment Plan Processing
      • Convenience to families – interest free
      • Requires promissory agreement signed by tuition payer (frequently NOT the student) – processor assumes this responsibility
      • No charge to institution – we share in enrollment fees and late fees they collect
      • Carefully negotiated payment plan due dates
        • Minimized potential negative impact upon cash flow
        • Since final payment for semester is due before registration period for the next semester, registration HOLDS help enforce completion of payment plan agreement
  • 19. Continuous process improvement - Outsourcing (continued)
    • Electronic bill presentment and payment
      • Online electronic check payments (free) and credit card payment with a convenience fee (2.3%-2.9%, depending upon size of transaction)
      • Email notification that electronic bill is ready for viewing/payment
      • Selected a single service provider which allowed
        • better rates
        • better integration
        • a more seamless interface to our customers
      • Note: Electronic billing saves the university at least $50,000 per year, which more than offsets the additional cost of less than $10,000 required to provide electronic payment processing
  • 20. Continuous process improvement - Outsourcing (continued)
    • NSF Check Collection
      • Bad checks are especially problematic in higher education, where tuition checks are likely to be for thousands of dollars
      • 2 nd presentment frequently no more effective than the first
    • Service Provider
      • Converts check to ACH
      • Verifies account balance before 2 nd presentment
      • Cost: the $30 NSF fee (statutory limit in Ohio)
  • 21. Continuous process improvement - Outsourcing (continued)
    • Collection letter-writing and telephone calling
      • Time consuming
      • Requires detailed record-keeping
    • Prior to placement with the Attorney General (as required by Ohio law)
      • Service writes letters, places two outbound calls, and records contact information in an internet-based system that they share with us
      • Cost about the same as postage and stationary
      • Eliminates the need for a full-time staff person
  • 22. Results: All ten indicators demonstrated our improvement
      • Collection effectiveness increased from 99.6% to 99.96% for tuition and fees; from 99.3% to 99.8% overall
      • Write offs decreased from $1.6M in 2003 to only $225,000 in 2006, representing an annual average contribution to our bottom line of nearly a half million annually
      • Steady decline in year-end receivables, in spite of an overall 38% increase in tuition and fees
      • Generated late fee and finance charge revenue of $1,419,552, net of late fees waived by staff!
  • 23. Results (continued)
    • Expedited cash flow by placing holds blocking registration, and increasing the efficiency of payment plan processing
    • Increased efficiency and eliminated the expense of collection letter-writing, also reducing the expense and inconvenience of placement with collection agency
    • Increased online payment activity, and recently eliminated lockbox service
  • 24. Results (The Surprises)
    • 85% decrease in customer complaints
    • Improved employee morale
      • Focus on mission gave a new sense of “purpose” to all that we do
      • Sharing progress toward goals (top ten “Dashboard Indicators”)
      • Delegating authority to make decisions at the lowest possible level (i.e., whether to waive a late fee)
  • 25. Lessons learned (in retrospect)
    • Promote, market, communicate, publish, educate – and tell them why you are making the change
    • Celebrate, recognize, reward, praise
      • Acknowledge individual contributions
      • Share results–with your staff, among colleagues, and other organizations
    • Pass it on
      • Benchmarking – get started now !