Implications Of Ignoring Software For Collection Effectiveness Index
Collection Effectiveness Index Formula
Collection Effectiveness Index (CEI) is an exacting metric in which every element needs to be calculated with due precision and care. The process itself is complicated and requires tenacity and inexorable vigilance, compounding the difficulty of non-automated operations in order to obtain the same results, viz., accurate and valid CEI. Although technology and software have taken over many labor-intensive and repetitive tasks, some businessestill adhere to the manual process for assessing the CEI.
Manual calculation of CEI consumes an abundance of time and effort. It demands substantial employee involvement, from analyzing customer data to adjusting transactional costs, and from connecting receivables with capital and tracking down time-consuming discrepancies to securing accounts receivables. All these steps and more necessitate the deployment of multiple resources. However, when omitted this type of inefficiency opens business up to the risk of mismanagement, negligent oversight, and ultimately decrease in revenue.
Likewise, the use of outdated, manual procedures increases the risk of errors in operations. Not only is the computation of CEI prone to mistakes, but accurate insights into account receivables must be consistently monitored and maintained to ensure the validity of the data. Without software, analytical abilities of CEI’s performance are reduced, spawning an unfortunate loss in the business ability to target key pain points and follow through on shoring up of accounts receivables.
In addition, the use of manual processes increases the cost of operation as business are forced to hire an excessive number of personnel. Since only select few employeemay have the requisite know-how to compute the CEI with efficiency and accuracy, the number of employeenecessitated to complete the task may be high, even amongst veteran personnel. As values such as opportunity cost, depreciation rate, and credit risk require attention and precision, manual calculation is the only option while contemporary technology and Softwaresolutions must be ignored thus inflating the cost of operations.
Despite the risks associated with dismissing software in favor of manual processes, some business do not employ the automation solutions that bring relief to the strenuous task of CEI calculation. All businesseshould consider the aforementioned risks and weigh them against the potential losses and inefficiencies that could be incurred by neglecting Softwaresolutions. Subsequently, Finance Executives should inspect their existing processes and determine whether automation technology will be beneficial, as software can abundantly mitigate the risks outlined and optimize their collections process.
