2004 Best Practices Study

AGENCIES WITH REVENUES BETWEEN $10,000,000 AND $25,000,000

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

1.15:1

1.59:1

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% 21.9%

FINANCIAL STABILITY

C1.

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

Average

Top 25%

Receivables/Payables Ratio

51.6% 14.8%

EMPLOYEE OVERVIEW

C2.

Aged Receivables

Average

Top 25%

PRODUCER INFO

Over 60 Over 90

8.8% 2.1%

1.2% 1.4%

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

APPENDIX

“Receivables management? Like many issues, this one boils down to training - not employee training, customer training!”

138