Strategic Planning & Analysis Flashcards

Which formula correctly calculates Best Possible DSO?

Answer: (Current receivables ÷ Total credit sales) × Number of days

Best Possible DSO uses only current (not past-due) receivables to show the DSO if every customer paid on time.

An agency's liquidation rate on a placement is best described as:

Answer: Total dollars collected divided by total dollars placed

Liquidation rate expresses recoveries as a percentage of the dollar value placed with the agency.

A collection manager compares cost-to-collect per dollar recovered across in-house and outsourced channels. This is primarily an example of:

Answer: Cost-benefit analysis for channel strategy

Comparing costs against recoveries by channel informs where resources produce the best return.

Which approach best aligns collection strategy with risk when resources are limited?

Answer: Segment accounts by risk score and balance, prioritizing high-value, higher-risk accounts

Risk-based segmentation directs effort to accounts where intervention yields the greatest expected recovery.

A key performance indicator (KPI) for collectors should ideally be:

Answer: Measurable, controllable by the collector, and tied to department goals

Effective KPIs are measurable, within the employee's influence, and support strategic objectives.

Benchmarking a collection department's results against industry peers is most useful for:

Answer: Identifying performance gaps and setting realistic improvement targets

External benchmarks show where an operation lags or leads, guiding goal setting.

A bad debt reserve that is consistently far higher than actual write-offs most likely indicates:

Answer: The reserve methodology is overly conservative and should be reviewed

Persistent over-reserving suggests loss estimates are too pessimistic relative to actual experience.