Effective Management of Accounts Receivable

Virginia Layton, MBABursarMiami University

About Miami University Selective, public institution located in

Oxford, Ohio, a small community 35 miles north of Cincinnati

14,385 undergraduates and 1,341 graduate students on the Oxford campus.

Regional campuses are located in Hamilton and Middletown, Ohio, and enroll an additional 4,400 students.

About Miami (continued) Residential university with a focus on

teaching undergraduates One of the eight original “Public Ivys” Consistently ranked as a best value among

publications such as Kiplinger’s, The Princeton Review, and The Fiske Guide to Colleges.

Recently, the 2007 U.S. News & World Report’s “America’s Best Colleges” ranked Miami University 21st among the top public universities in the nation.

About Miami (continued) Net operating revenues in 2006 were

$333,666,944 State subsidies declined by 15 percent

between 2000 and 2005, and in 2006 they represented only 15 percent of Miami’s total revenue budget

We find it increasingly challenging to provide quality education at a reasonable price to students and their families.

Background Implemented all modules of Sunguard SCT

Banner within a one-year period in 1999, due to a critical Y2K issue

Aggressive timeline stretched resources, and several processes, including billing, were still being refined at the time of implementation

Didn’t bill regularly in 1999-2000 Changed audit firms in 2002, and our new

audit firm thoroughly scrutinized our allowance for doubtful accounts calculation and write-off practice

The Problem In our 2002 annual audit, it was

recommended that we develop, and implement, a more aggressive write-off policy.

In 2003, we wrote off $1.6M in student accounts receivable.

Continued collection efforts on the accounts which were written off

Impact upon the bottom line of our financial statements that year did not go unnoticed by our Board of Trustees

Proposed Solution Continue on the path of continuous process

improvement that we had begun after the successful implementation of the accounts receivable module of Banner Continue with customer service improvement

initiatives New goal of significantly reducing outstanding

accounts receivable, without compromising service to students

Measure our results

Design Mission Statement Benchmarks, or key dashboard indictors

Must be relevant Must be manageable/easy to produce and

maintain Proceed and enhance continuous process

improvement initiatives, without compromising service

Collaborate when needed Senior administration Enrollment Services Team

Implementation

Mission Statement

The Office of the Bursar maintains the financial assets of the University with integrity, while providing quality customer service delivered with respect and fairness to all internal and external stakeholders.

Mission statement

Two-pronged mission – no initiative should compromise either customer service or our fiduciary responsibility

Kept us focused Increased staff morale and

satisfaction

Benchmarking Began in 2001-2002 as we tracked

statistics relative to billing, payments received, late fees assessed, scholarships and financial aid awarded, etc. (Exhibit 1)

In 2003, we added benchmarks related to collection effectiveness (Exhibit 2) Wrote off $1.6M in A/R, however we billed nearly

$290M that same year Ratio: 1-(A/R outstanding)/amount billed yielded

an overall collection effectiveness ratio of 99.3%!

By adding 2004 data, we developed a list of our Top Ten Dashboard Indicators

Top Ten Dashboard Indicators1. Total Annual Tuition and Fees Billed2. Total Annual Amount Billed (includes room and

board, other fees, incidentals)3. Collection Effectiveness of Tuition and Fees (1- tuition

and fees outstanding/total tuition and fees)4. Collection Effectiveness Overall (1-total amount

outstanding/total amount billed)5. Total Annual Write-offs6. Year over year monthly aging comparison (Exhibit 3)7. Receipts/payments amount and composition8. Year over year phone calls completed (Exhibit 4)9. Late fee and finance charge revenue10. Customer complaints (to the president) Year end Receivables (Exhibit 5)

Continuous process improvement - Banner

Resumed regular billing Reinstated the practice of cancelling

classes for non-payment (with support of Enrollment Services Team)

Began assessing $100 late fee (it had been $50) and empowered all Bursar staff with the ability to waive it.

Continuous process improvement – Banner (continued)

Implemented new practice of placing holds blocking future registration for balances of $500 or more Collaborated with Enrollment Services

Team Gained support of senior administration Effective tool to encourage completion of

all payment plan agreements and financial aid requirements within the first sixty days of the term

Continuous process improvement – Banner (continued)

Used Banner functionality to identify and manage past due accounts Assessed finance charges of prime+3%

to all past due accounts not currently enrolled

Flagged delinquent accounts Collection letter-writing Placement with collection agency

Continuous process improvement – Banner (continued)

Delayed disbursement and refunding of financial aid overages on regional campuses 10% of past due A/R was due to the

return (restoration) of financial aid due to withdrawals and/or overawards

Worked closely with Enrollment Services Team to study the supporting data

Collaborative decision was made to delay disbursement on regional campuses only

Continuous process improvement - Outsourcing

Unfortunately, Banner did not always provide the solutions we sought In several cases, outsourcing offered

competitive, cost-effective alternatives that allowed us to achieve our objectives.

Some actually saved the institution money, while others increased service to students at a nominal rate.

Continuous process improvement - Outsourcing (continued)

Payment Plan Processing Convenience to families – interest free Requires promissory agreement signed by

tuition payer (frequently NOT the student) – processor assumes this responsibility

No charge to institution – we share in enrollment fees and late fees they collect

Carefully negotiated payment plan due dates Minimized potential negative impact upon cash

flow Since final payment for semester is due before

registration period for the next semester, registration HOLDS help enforce completion of payment plan agreement

Continuous process improvement - Outsourcing (continued)

Electronic bill presentment and payment Online electronic check payments (free) and credit

card payment with a convenience fee (2.3%-2.9%, depending upon size of transaction)

Email notification that electronic bill is ready for viewing/payment

Selected a single service provider which allowed better rates better integration a more seamless interface to our customers

Note: Electronic billing saves the university at least $50,000 per year, which more than offsets the additional cost of less than $10,000 required to provide electronic payment processing

Continuous process improvement - Outsourcing (continued)

NSF Check Collection Bad checks are especially problematic in higher

education, where tuition checks are likely to be for thousands of dollars

2nd presentment frequently no more effective than the first

Service Provider Converts check to ACH Verifies account balance before 2nd presentment Cost: the $30 NSF fee (statutory limit in Ohio)

Continuous process improvement - Outsourcing (continued)

Collection letter-writing and telephone calling Time consuming Requires detailed record-keeping

Prior to placement with the Attorney General (as required by Ohio law) Service writes letters, places two outbound calls,

and records contact information in an internet-based system that they share with us

Cost about the same as postage and stationary Eliminates the need for a full-time staff person

Results: All ten indicators demonstrated our improvement Collection effectiveness increased from 99.6% to

99.96% for tuition and fees; from 99.3% to 99.8% overall

Write offs decreased from $1.6M in 2003 to only $225,000 in 2006, representing an annual average contribution to our bottom line of nearly a half million annually

Steady decline in year-end receivables, in spite of an overall 38% increase in tuition and fees

Generated late fee and finance charge revenue of $1,419,552, net of late fees waived by staff!

Results (continued)

Expedited cash flow by placing holds blocking registration, and increasing the efficiency of payment plan processing

Increased efficiency and eliminated the expense of collection letter-writing, also reducing the expense and inconvenience of placement with collection agency

Increased online payment activity, and recently eliminated lockbox service

Results (The Surprises) 85% decrease in customer complaints Improved employee morale

Focus on mission gave a new sense of “purpose” to all that we do

Sharing progress toward goals (top ten “Dashboard Indicators”)

Delegating authority to make decisions at the lowest possible level (i.e., whether to waive a late fee)

Lessons learned (in retrospect) Promote, market, communicate,

publish, educate – and tell them why you are making the change

Celebrate, recognize, reward, praise Acknowledge individual contributions Share results–with your staff, among

colleagues, and other organizations Pass it on

Benchmarking – get started now!