IMPROVING COLLECTIONS AT ATLAS CORPORATION The Atlas Corporation rents and sells
ID: 469326 • Letter: I
Question
IMPROVING COLLECTIONS AT ATLAS CORPORATION
The Atlas Corporation rents and sells furniture and appliances to individual consumers. The company’s primary market focuses on renters who buy furniture and appliances by “renting to own.” That is, the customer pays a rental charge (which includes 28% interest charges) for a specified time and, at the end of that contract, owns the furniture. Atlas maintains its own credit department and charges a high rate of interest (28%) for these contracts.
Over the past couple of years, the company has experienced a problem in collecting customer payments in a timely manner and, as a result, has seen a sharp drop in profitability. The effect on profitability is such that Atlas Corporation is now paying higher interest to its bank (8%) to carry its own indebtedness.
Management at Atlas wants the Accounts Receivable Department to increase its collection of past due bills. It has turned to you in the Human Resource Department to develop a system to incent and reward the Accounts Receivable Clerks for increasing the dollars in collections each month. Each A/R clerk is paid as a non-exempt hourly employee.
Applying what you know about what makes incentive and rewards effective, think through the process of designing an incentive and reward program for Atlas. Identify any issues that must be addressed. The information in the table below provides the previous year’s results (“Monthly Total” means the amount due but NOT collected in that month).
PREVIOUS YEAR’S OUTSTANDING PAST-DUE ACCOUNTS (By Clerk)
MONTH
Clerk A
Clerk B
Clerk C
Clerk D
MONTHLY TOTAL
Jan
$3,000
$5,000
$5,000
$2,000
$15,000
Feb
$3,000
$11,000
$17,000
$4,000
$35,000
Mar
$2,000
$4,000
$5,000
$5,000
$16,000
Apr
$13,000
$2,000
$6,000
$12,000
$33,000
May
$8,000
$19,000
$2,000
$3,000
$32,000
Jun
$3,000
$4,000
$8,000
$17,000
$32,000
Jul
$2,000
$10,000
$5,000
$8,000
$25,000
Aug
$5,000
$2,000
$1,000
$2,000
$10,000
Sep
$11,000
$8,000
$0
$4,000
$23,000
Oct
$22,000
$5,000
$5,000
$8,000
$40,000
Nov
$3,000
$3,000
$2,000
$5,000
$13,000
Dec
$1,000
$4,000
$5,000
$2,000
$12,000
YEARLY TOTAL
$76,000
$77,000
$61,000
$72,000
$286,000
Provide your rationale for the following questions:
What do you think is a realistic goal for Atlas to shoot for overall in reduction of outstanding amounts each month (this can be in actual dollars or a percentage of the total amount currently due)?
Should this be an individual-based incentive, a team-based incentive, or a combination of both? How would you design it?
When should the incentive/reward be given—monthly, quarterly, annually?
How should it be given—publicly or privately?
What should the reward(s) or incentive(s) be? Who should determine what they should be and how they should be distributed?
IMPROVING COLLECTIONS AT ATLAS CORPORATION
The Atlas Corporation rents and sells furniture and appliances to individual consumers. The company’s primary market focuses on renters who buy furniture and appliances by “renting to own.” That is, the customer pays a rental charge (which includes 28% interest charges) for a specified time and, at the end of that contract, owns the furniture. Atlas maintains its own credit department and charges a high rate of interest (28%) for these contracts.
Over the past couple of years, the company has experienced a problem in collecting customer payments in a timely manner and, as a result, has seen a sharp drop in profitability. The effect on profitability is such that Atlas Corporation is now paying higher interest to its bank (8%) to carry its own indebtedness.
Management at Atlas wants the Accounts Receivable Department to increase its collection of past due bills. It has turned to you in the Human Resource Department to develop a system to incent and reward the Accounts Receivable Clerks for increasing the dollars in collections each month. Each A/R clerk is paid as a non-exempt hourly employee.
Applying what you know about what makes incentive and rewards effective, think through the process of designing an incentive and reward program for Atlas. Identify any issues that must be addressed. The information in the table below provides the previous year’s results (“Monthly Total” means the amount due but NOT collected in that month).
Explanation / Answer
The debt or the strategy for reduction of outstanding should be realistic. If the Atlas wants to reduce the debt structure then it needs to implement or introduce some innovative strategies to overcome the debt. The dues can be divided equally between the four clarks and each of them needs to achieve their target. The direct and indirect credit collection plans would surely increase the profit of the company. While pursuing these strategies the employes should use proper decision-making concepts to foster growth and develop the work culture in the collections department. Using appropriate measures and realistic ideas can surely help Atlas to recover the dues. Some of these strategies are: shorten the lead time, improve customer satisfaction, reduce errors or defects, reduce costs, increase in the motivation for the employees, focus employee training and support and reduce costomer complaints. The overall due is $286,000 this can be divided by 12 months(286,000/12= $23,834). Now, this $23,834 can be collected every month by four clarks and each clark has to collect (23,834/4= $5958). So, on an average each clark should be given a target of $5958 per month.
Choosing the incentive structure is always a challenging for any organization or any business as it can solely be the most effective factor for motivating the employees. A good incentive structure would always foster the growth of the organization. Whether it's a team incentives, individual incentives or a combination of both, what important is how effectively it's able to drive the goal of the organization.
Well, Incentive structure should be mixed with individual incentive and a team-based incentive. Individual performance based incentive should help to achieve the target for the individuals and the team-based incentive would foster the overall target for the entire team. Team based incentive would drive the entire team to perform. There would be a good coordination among the team members. On the other hand if an individaul clark achieves his or her targer he or she would be eligible for the individual incentive. This can be a win win sceanrio for both the employees and the firm.
Incentives should be given monthly. There would be a plan to determine the incentive structure and everybody should be well aware of it. It should be decided publicly. There is no need to play a hide and seek as it's completely a performance based payout. It's not going to hurt anyone's morale. Moreover, if it's paid on a monthly basis the AR clarks would be motivated to work hard and even if they achieve more than 150% of their target they should be appreciated with monetary as well as effiecient and productive employee of the organization. They can be given a certficate or a token gift for their determintaion. Continous good performance for more than 6 months can lead to promotion and increase in the salary structure.
As discussed above, incentives or rewards can be anything. It can lead to promotion, increase in the salary, monetary payouts, gits, recognition by the CEO, certificate of honor etc. There should be a WOW factor behind all these. The reward programs should be decided by the senior managers and the CEO. They need to set reasonable and transparent performance standards for incentives. Recognition of small and large accomplishments can surely boost their energy level for performance. Distribuation of reward or incentives can be done in the team meetings or if its a monetary payout it can be paid along with the salary.