The Delineation Of Collection Effectiveness In Order To Cash Solutions
COLLECTION EFFECTIVENESS INDEX
No doubt managing cash inflow and outflow through accounts receivable and collections is critical part of running successful business. All of the essential activities associated with Order-To-Cash (OTC) software have emphasized the need for developing way to measure their effectiveness. This article will introduce Collection Effectiveness Index (CEI) with the purpose of assessing performance of OTC solutions.
Understanding the CEICEI offers new approach to gathering and analyzing data which makes it easier to identify opportunities for improvement and projects future growth of an organization. The index presents an aggregated score based on invoice adjustments, receivable aging, dispute management, collection disputes, and dispute resolutions. This provides way to understand profitability at the customer level and monitor customer performance in real time.
Calculating the CEIIn order to calculate the CEI, the individual key performance indicators (KPIs) must first be determined. KPIs measure the performance of process, whether they are related to OTC or not. For more detailed breakdown of KPIs related to the OTC process, please refer to our previous article.
The next step is to apply an algorithm to the KPIs to create score that reflects the overall performance of the OTC process. To do this, standard benchmark score is established and used as benchmark to compare the KPIs against. If all KPIs are above the benchmark, the score will be calculated as 100%. However, if any of the individual KPIs are below the standard benchmark, the score will be adjusted accordingly.
Benefits of CEIThe advantage of using CEI is that it provides holistic view of OTC operations. It can help identify areas of inefficiencies, pinpoint customer-level trends, and monitor performance in real time. In addition, it can be used to assess the impact of any process improvements and make informed decisions going forward.
Using the CEINow that the basic concepts of the CEI, as well as how it is calculated, are understood it is important to understand how the index can be used. The index should be monitored regularly to ensure that OTC operations are running as expected, and to identify any patterns in performance. Additionally, the CEI can be used to measure the effectiveness of any changes made to the OTC process, allowing for optimization of the process across the organization.
Conclusion The Collection Effectiveness Index is useful tool for understanding the performance of Order-To-Cash solutions. By providing an aggregated score based on KPIs and applying an algorithm to generate the score, the CEI is able to reflect the overall performance of process. Additionally, it can be used to help identify opportunities for improvement and assess the impact of any changes made to the OTC process.
