In an article published by SHRM, the Society for Human Resource Management, they state the “total costs of replacement, including training and loss of productivity, can range from 90% to 200% of an employee’s annual salary”. That’s an enormous financial burden on the business, but have you ever stopped to think about the specific impact that turnover has on AR Performance?
Who’s my primary contact?
Let’s be honest, in some cases, customers may speak with their AR representative more frequently than anyone else in the organization. Problems with their invoice or products, short shipments, damages, in the end it all comes back to AR. Customers are smart; they take note of those inconsistencies and start testing the water. First, they might go 45 days past due and then when they don’t get a phone call, they push it to day 60. If they short pay a transaction and never get a follow up call to investigate or refute the claim, they deduct more frequently. Eventually, you have a customer paying 90% of all invoices at day 120 and the financial impact is huge.
There just isn’t enough time in the day!
High turnover may be burdensome to HR, but it has a direct impact on the Credit or AR manager. Constant turnover brings with it a confused approach and a loss of specific customer business intelligence. Having an AR manager focused on the hiring and training process, distracts them from managing their primary job responsibility, ensuring AR performance is maintained. This includes maintaining the customer relationship, driving for increased collections and resolving customer disputes in a timely manner. The figure below shows what becomes the focus of the credit manager during a high turnover situation.
Credit manager's focus is not on AR Performance when dealing with a high turnover situation.
So, how does this affect me?
Let’s face it, in the business world today, there are so many external barriers to payment and customers are getting smarter about the advantages they can take and when they can take them. Minimizing turnover is purely an internal issue and I believe a small hurdle with a big benefit. For example, our O2C division has minimal turnover, which provides stability and consistency: two essentials when building a good working relationship with the customer base. The result: our AR performance runs at optimum levels, with currency percentages in the low 90’s and negligible AR over 60 days old. Invoices that age past due receive immediate attention. Customer disputes are flagged, monitored and followed up timely for quick resolution.
Employee turnover has a direct link on AR performance. Without stability and consistency, two essential ingredients for managing a customer base and controlling their behavior, the receivable deteriorates. Over time, you're left with a distracted credit manager, lower morale and seriously aged debt that could take months to rectify.
