Collections Effectiveness Index Metrics

Using Collections' effectiveness metrics you can measure and view the performance of your collections activities at various levels.

It provides you industry standard formulas to measure and calculate these metrics' for collection performance. The result of these calculations are displayed in percentage to measure the effectiveness of your collection efforts over time. The closer is your percentage to 100 the more effective is your collection effort.

You can accurately measure the effectiveness of your collection process, amount collected and the amount yet to be collected, and evaluate the individuals, subgroups, and overall groups.

Now, let's understand the Metric parameters:

• Metrics Common Currency: This is the default currency used for reporting. You can define this in Collections Preferences.

• Inception Date: This is the date from which your customer balance is calculated. You can't calculate any balance before the inception date. You can set the Inception Date from the Collections Preferences. Remember that when you start calculating metrics for the first time, any unpaid open transaction before the Inception Date, becomes the starting balance for the Inception Date.

  For example: If a customer has open transactions in calendar year 2012 totaling 100,000 USD and the inception date is set to January 1, 2013. Then the beginning balance for the customer on January 1, 2013 will be 100,000 USD.

• Activity Date: The activity date drives what bucket of time the document is grouped into your metrics. Each document has a corresponding activity date, documents include:

  • invoices

  • receipt application

  • credit memos

  • adjustments

  • unapplied receipts

  The activity date is typically the accounting date of the document. You can calculate the balances and metrics from the current time going backward to the inception date based on the activity dates of the corresponding documents.

Now lets look at few formulas for metric Calculations:

Calculate Collection Effectiveness Index

Using Collection Effectiveness Index (CEI) you can accurately measure the collection effectiveness, amounts to be collected, and the amount actually collected. You can use this metric to evaluate individuals, subgroups, and overall groups.

(Beginning Balance + Credit Sales minus Ending Balance) / N / (Beginning Balance + Credit Sales minus Current Receivables) / N * 100.

Where N = number of days in the period.

Current Receivables= the current amount of receivables transactions which isn't in dispute or due from past.

Calculate Percent Current and Percent Over 90 Days Delinquent

Percent Current = Current Receivables / Ending balance * 100.

Percent Over 90 Days Delinquent = Receivables greater than 90 days Overdue / Ending balance * 100.

Calculate Over 90 Days Delinquent

The over 90 days delinquent is the total amount that's past 90 days due.

Calculate Beginning Balance and Ending Balance

Beginning Balance = Total outstanding open receivables at the beginning of the period.

Ending Balance = Total outstanding open receivables at the end of the period.

Calculate Credit Sales

Revenues generated by an entity that it allowed to the customers on credit, less all sales returns and sales allowances.