Collections teams excel or fail based on goals. Unrealistic goals demoralize teams; overly-easy goals waste potential. Finding the right level separates successful from struggling departments.
Goal Setting Principles
Based on Data: Use historical performance as baseline. If current collection rate is 72%, goal of 95% (without system changes) is unrealistic. Goal of 75% is achievable.
Account for Seasonality: Collections vary by season. Setting uniform monthly targets ignores business reality.
Tied to Business Growth: As company grows, receivables grow. Collection volume and DSO targets should scale accordingly.
Account for Economic Conditions: Recession reduces collection rates. Growth periods enable better performance.
SMART Framework: Specific, Measurable, Achievable, Relevant, Time bound
Realistic Baselines
Collection Rate: Percentage of AR collected within standard terms
Healthy: 70-85%
Excellent: 85-95%
Exceptional: 95%+
DSO Target: Vary by industry
Retail: 15-25 days
Manufacturing: 30-45 days
B2B Services: 30-60 days
First Call Resolution: Percentage of collection calls resolving issues first contact
Target: 60-70%
Promise-to-Pay Conversion: Percentage of promised payments actually received
Target: 70-85%
Common Goal Setting Mistakes
Ignoring Baseline: Setting aggressive goals without understanding current performance creates frustration.
No Seasonality Adjustment: Expecting consistent monthly performance when business is inherently seasonal.
Treating Collections as Constraint: Setting collection goals independent of quality of AR (old AR harder to collect).
Oversimplifying to One Metric: DSO matters, but collection rate, bad debt, and customer retention also matter.
Lack of Flexibility: Rigid annual targets without adjustment for economic changes or business shifts.
Goal Communication
Transparency: Team should understand how goals determined, not just what targets are.
Cascading Goals: Company goal → Department goal → Team goal → Individual goal
Clear Ownership: Each person knows what they’re accountable for.
Regular Feedback: Monthly reviews of progress, not just end-of-year surprises.
Celebration of Wins: Recognition when goals achieved or exceeded.
Balancing Aggressive with Achievable
The Stretch Goal: 10% improvement from baseline is aggressive but usually achievable with effort. 30% improvement is unrealistic without major system changes.
Paired with Resources: If goals increase but staff/tools remain constant, goals are unrealistic.
With Clear Path: Team should understand how to achieve goals. “Improve DSO 15%” without strategy is frustration.
With Consequences: Goals paired with accountability (both positive and negative) matter more than arbitrary targets.
Individual vs. Team Goals
Team Goals: DSO, bad debt rate, collection effectiveness. Team succeeds together.
Individual Goals: Account collection rate, calls completed, first-call resolution. Individual effort measured.
Balance Both: Team goals encourage collaboration; individual goals drive personal accountability.
Tools for Achieving Goals
Technology: Automated reminders, predictive analytics, better systems enable better results.
Training: Collectors improve with coaching, skill development, technique sharing.
Staffing: Adequate coverage during peak periods enables collection execution.
Process Improvement: Eliminating friction accelerates payment.
Customer Communication: Clear terms and expectations reduce payment friction.
Periodic Reassessment
Goals should be reviewed quarterly:
Are we on track?
Do conditions warrant adjustment?
Are external factors affecting achievement?
Do we need additional resources or support?
Annual goals set in January may not make sense in July if business changed.
Red Flags
Goals consistently missed: Either goals unrealistic or execution failing. Investigate.
Goals consistently exceeded: Either goals too easy or team found efficiencies. Calibrate.
Team demoralization: Unrealistic goals crush motivation. Reset goals if team disengaged.
Sacrificed quality for metrics: Collectors achieving collection targets but breaking customer relationships. Goals too narrow.
The Bottom Line
Well set goals inspire teams. Poorly set goals frustrate them.
Realistic, data-driven, clearly communicated goals tied to achievable outcomes with adequate resources drive strong performance.
Set goals as leadership’s commitment to team, not team’s job to meet arbitrary targets.
