Effective management of accounts receivable


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Effective management of accounts receivable

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