Sure, some customers will pay you on time. But most of them will need some reminding, either with a follow up email or call. It takes two to get paid; your customers to pay the invoices, and you to hold them accountable.
You can keep tabs on how well your customers are keeping up their end of the bargain with, DSO, DBT, and ADD. But what about you? How well is your receivables team doing? Collections Effectiveness Index (CEI) is your metric. It measures the percentage of invoices you collected during a given period.
What is Collections Effectiveness Index (CEI)?
This is the percentage of AR that you were successfully collected in that month. If your CEI is 100% then you were paid (or closed out) 100% of your open invoices. The higher your CEI, the better. As your CEI increases, your DSO and DBT should decrease.
How to improve CEI?
Strategies to improve your Collections Effectiveness Index are similar to those that improve DSO and DBT.
- Establish a consistent follow up schedule with your clients that includes reminders before an invoice is due, calls and emails.
- Offer multiple payment options
- Clearly state all payment options and remittance details on all of your invoices and reminders. Don’t worry about being repetitive, if your customers have to go looking for this information, they’re more likely
- Be strategic about setting payment terms. If customers have a history of delinquent payments, set stricter terms.
Check your CEI regularly and review your accounts receivables follow up strategies on a monthly basis. If you need to increase the frequency of your reminders or make your payment process easier, you’ll want to put these solutions in place right away. Then continue monitoring your CEI to make sure you are collecting payments in the most effective way possible.