2004 Best Practices Study

AGENCIES WITH REVENUES BETWEEN $5,000,000 AND $10,000,000

FINANCIAL STABILITY A. Current Ratio

EXECUTIVE PERSPECTIVES

A current ratio greater than 1:1 indicates that cash and assets with short-term maturities are sufficient to meet a firm’s short-term obligations.

Average

Top 25%

Liquidity/Current Ratio

1.17:1

1.57:1

PROFILE

B.

Tangible Net Worth The tangible net worth is an important measure as it represents the net value of the corporation if it were liquidated. A low or negative tangible net worth impacts a firm’s ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations .

REVENUES/ EXPENSES

Average

Top 25%

Tangible Net Worth (as % of Net Rev)

3.9% 20.1%

FINANCIAL STABILITY

C1.

Receivables The following ratio measures the collection practices of an agency, with a lower ratio representing more timely collections.

Average 47.2%

Top 25%

Receivables/Payables Ratio

6.7%

EMPLOYEE OVERVIEW

C2.

Aged Receivables

Average 17.7%

Top 25%

Over 60 Over 90

4.4% 2.1%

PRODUCER INFO

6.5%

D.

Receivables Management Practices Participants were asked to indicate which practices they utilized and to score the practices’ effectiveness where 1 = NOT EFFECTIVE and 5 = EXTREMELY EFFECTIVE .

SERVICE STAFF INFO

% Utilizing

Score

0%

100%

Management reviews receivables regularly Have strict collection policy Hold producers responsible for bad debts Encourage/require use of direct bill Encourage/require use of premium finance

TECHNOLOGY

Use pre-billing and binder billing Do not allow agency financing

INSURANCE CARRIERS

Centralize collections & remove producer involvement Provide clients with written copy of collection policies Other

0.0

1.0

2.0

3.0

4.0

5.0

"Receivables management is easy. If an account isn't collected within 90 days, we charge it back to the producer. After 90 days, even if it is eventually collected, the producer is not paid."

APPENDIX

114