The Walt Disney Co. has developed several new metrics to fit the fact that as a diversified media company it pulls in revenue from many different streams: advertising from broadcast and cable TV commercials and print media, box office receipts, merchandise, theme park tickets and hotel receipts, and so on.
“From the day an invoice becomes due to the day it gets paid is what we’d like to measure — how efficient are they?” says Kathy Clark, vice president of credit and collections at Disney. Accordingly, it uses a collection effectiveness index (CEI),
which represents the total amount of money currently billed that should be collected. The important number is the percentage of that total Disney has collected over a given period. Another is days to close, a measure that Disney created, which day-weights the number of transactions outstanding, from the day an invoice is issued to the day payment is actually received. Knocking, say, one day or half a day off that figure generates significant improvement, says Clark.
Better data allows finance executives to monitor business units’ performance on accounts receivable more closely and bring pressure to bear where it’s needed. Stoller sends a monthly report to financial executives at each of The New York Times Co.’s business units with a note summarizing the trends he is seeing in each of these areas. When he sees a problem, he sends a follow-up note to the CFO of the unit in question.
The variety of metrics that companies use to measure their working capital performance doesn’t always help them benchmark against each other, however. For example, Eastman Chemical found that it was difficult to compare its trade accounts payable numbers against other chemicals companies’ numbers, because the accounting rules allow a lot of flexibility in how current liabilities can be shown on the balance sheet, requiring the reader to look carefully at the footnotes for details. So treasurer Mary Hall assigned a staff member last year to look deeply into some 15 companies’ annual reports and 10-ks and to figure out how to align comparable data to create a trend line showing how best performance shifted over time. What she found: “We stack up pretty well — not best in class, but kind of in the average-to-better end of the scale.”
The good news is that better metrics and a stepped-up working capital reporting calendar don’t have to cost a fortune. Often, a company just needs to make better use of the analytic and database resources it already has. “We’ve helped several large clients in the forecasting arena to develop Excel-based models that work very well,” says Susan Skerritt, partner at consulting firm Treasury Strategies. These work well as long as the reporting processes behind them — the “non-technological elements” — are well-designed and focus on data that really helps the company to achieve its goals.
The New York Times Co. consolidates information on all of its customer accounts in a Lotus Notes database that it maintains on a shared area of its corporate intranet, where people can also post collection trends and relevant data from customers’ credit files. Keane says it did not have to purchase new software while putting its new system into place. And at The Walt Disney Co., enhancing working capital reporting merely meant creating a simple “dashboard” that allows Disney credit and collections executives worldwide to post once-a-month reports on their non-adjusted accounts receivable and collection activity over a certain dollar amount.