Performance Bonuses for Collectors

Performance bonuses are not widely used in business to business collections.  Some of the more commonly asked questions about performance bonuses for collectors include: 

• How can we develop an incentive program that rewards collectors for exceptional performance?
• How can we create an incentive program that rewards the right things?
• Is there a basic performance bonus model we can use and modify based on our budget for such bonuses?
• Is there a model that is easily adaptable to any organization?
• Is there a model in which bonuses are simple to calculate? 

The answer to all of these questions / concerns is the bonus plan for collectors described below.

Collectors would be eligible for quarterly bonuses. These bonuses would be based on individual collector performance as measured at the end of each month of the quarter.  Collectors would be eligible for a bonus of up to xx % [Example 10 percent] of their quarterly gross earnings based on a points system. The following calculations would need to be made each month end for each collector:

1. The total past due as a percent of total A/R in each collector’s area of responsibility;
2. Balances owed over 90 days as a percent of total A/R;
3. Total deductions as a percent of total A/R.

Assume the following hypothetical results for each month in a given calendar quarter for a particular collector:

1. 10% of total AR is past due;
2. 1% is over 90 day old;
3. 4% of total AR involves open debits and deductions

            Total 15% x 3 months = 45% = 45 points

Bonuses are paid using the following calculations:

For a three month period, a total score of:

The percentages and the amount of the bonus can be modified in any way that makes sense to you.  The model described above is useful because of its simplicity. 

© 2011.  Michael C. Dennis.  All Rights Reserved.  Michael is the author of "Credit and Collection Handbook."