Why ‘Gut-Check’ Benchmarking Is Dangerous

Few AR leaders measure their team’s performance and even fewer benchmark their results against their peers. That’s an unfortunate takeaway from a recent survey of more than 200 AR practitioners by IOFM.

More worrying, most AR leaders are wrong when it comes to how they think they compare to organizations like theirs. Respondents were asked if they thought their results were better or worse than their peers – most were far off.

Of the only two metrics the majority of respondents track (DSO and aging payments), more than three-quarters of AR leaders inaccurately pegged their results. Whether over- or under-confident, the result is that organizations are making business decisions based on a wrong gut-check.

Especially in this economy, it’s crucial to know if your numbers are good or bad. But if you don’t benchmark accurately, you don’t know if your performance is as excellent as it could or should be.

IOFM found that it’s crucial to compare your performance with peers that utilize similar processes to yours (either manual or automated) and serve customers in similar industries (a breakdown by service vs. product companies will usually suffice).

Failing to do so can lead you to make bad management decisions. If you’re processing cash applications manually, your efficiency results are likely far lower than those that can automate that process – leading you to think you’re doing a bad job and making unnecessary changes to your processes and people.

We suspect a lot of organizations only benchmark internally, comparing year-over-year results. But, again, in today’s economy, a good number a year ago may be unattainable as customers delay payments or don’t pay altogether. And as a result, your team may be held to an unachievable level of performance.

IOFM members have no excuse not to benchmark. Compare your results to hundreds of your peers here.