If you notice that your accounts receivable days outstanding has doubled in the first 6 months. Do you give someone a bonus or put hin or her on probation? Why?
Determining whether to give someone a bonus or put them on probation based solely on the doubling of the accounts receivable days outstanding requires a deeper analysis of the situation. Let's break down the steps to take when assessing this scenario:
1. Understand the accounts receivable days outstanding: Accounts receivable days outstanding is a metric that measures the average number of days it takes to collect payment from customers after a sale. It is calculated by dividing the accounts receivable balance by the average daily sales. Doubling this metric indicates a significant increase in the time it takes to collect payments.
2. Gather additional information: Look beyond the accounts receivable days outstanding to understand the underlying reasons for the increase. Consider factors such as changes in the market, customer behavior, company policies, or the individual's actions that may have contributed to the change.
3. Conduct a performance review: Evaluate the employee's overall performance, including their responsibilities related to accounts receivable management. Assess their ability to follow established procedures, communicate effectively with customers, and manage collections. Review their track record, skills, knowledge, and any feedback received.
4. Identify causes and accountability: Determine the underlying reasons for the increase in accounts receivable days outstanding. If the individual is directly responsible for managing collections and there is evidence of negligence, poor performance, or a failure to address issues promptly, they may be held accountable. Conversely, if the increase is caused by external factors beyond their control, the blame may lie elsewhere.
5. Consider coaching and improvement opportunities: Assess whether the individual requires training, mentoring, or additional support to improve their performance in managing accounts receivable. Evaluate their willingness to learn and adapt, as well as their potential for growth.
6. Make an informed decision: Based on the gathered information, determine whether the employee should be rewarded with a bonus, placed on probation, or subjected to any other disciplinary measure. Consider the overall impact on their performance, the company's goals, and the individual's potential to improve.
It is essential to handle performance evaluations and decisions impartially, ensuring fairness and consistency. Considering the specific circumstances and the individual's overall performance will help you make an informed decision on whether to provide rewards or initiate a probationary period.