2004 Best Practices Study
AGENCIES WITH REVENUES BETWEEN $5,000,000 AND $10,000,000
FINANCIAL STABILITY A. Current Ratio
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.
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 .
Tangible Net Worth (as % of Net Rev)
Receivables The following ratio measures the collection practices of an agency, with a lower ratio representing more timely collections.
Over 60 Over 90
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
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
Use pre-billing and binder billing Do not allow agency financing
Centralize collections & remove producer involvement Provide clients with written copy of collection policies Other
"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."
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