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    Quick and Easy KPI for Collection Measurement (CEI)

    Learn how to use the Collection Effectiveness Index (CEI) to measure and improve your organization's A/R collection performance with a simple formula and clear benchmarks.

    Thought LeadershipFebruary 1, 2016CRiskCo

    Ensuring a successful and profitable business is not a simple task. While it is well known that one of the most important keys is managing your Accounts Receivable, how do you know that you are doing it right?


    If you're already measuring your A/R collection, you're doing the right thing. If you aren't, start now!


    What is CEI?


    The CEI (Collection Effectiveness Index) is an advanced, yet simple way to measure your collection efficiency. CEI measures quality of collection over time. With this index you will get a "grade" between 0-100 that teaches you about your organization's collection effectiveness.


    The higher the grade, the better.


    How to Calculate CEI


    The data required to calculate CEI is:


  1. Period — the number of months you want to measure. Usually it will be 12 (a year), but a shorter or longer period will work fine.
  2. Beginning Receivable — sum of A/R at the beginning period.
  3. Total credit sales — Revenue sum from credit sales during the period (do not include cash sales).
  4. Ending total Receivable — Sum of A/R at the end of the period.
  5. Ending current Receivable — Sum of A/R at the end of the period where the invoice due date has not yet passed.

    6. The formula:


    CEI = (Beginning Receivable + Total Credit Sales − Ending Total Receivable) ÷ (Beginning Receivable + Total Credit Sales − Ending Current Receivable) × 100

    Example


    You started 2015 with $1.4 million A/R and in 2015 you made sales at $10 million. At the end of the year, there are still unpaid invoices totaling $1.2 million, of which $800,000 has a due date equal or greater than 31/12/2015.


    CEI = (1,400,000 + 10,000,000 − 1,200,000) ÷ (1,400,000 + 10,000,000 − 800,000) × 100 = 96.2%

    A CEI of 96.2% indicates strong collection performance!


    You don't need to develop the algorithm on your own: you can get a system that analyzes in a way that meets all your needs and much more using a savvy, leading-edge platform like CRiskCo.

    CEIaccounts receivableKPIcollection efficiencycash flow