Contractors Get Paid Faster: What Is CEI in Accounting?
Are unpaid invoices and late payments causing you financial headaches? Are you ready to improve your collection efforts and achieve better financial stability? Good news—we have a solution!
In this blog, we will introduce you to the collection effectiveness index (CEI). This is a crucial account receivable KPI that measures your company's ability to collect its receivables. We will explain what CEI is and show you how to calculate and improve it. So get ready to take charge of your collection process and enjoy the peace of mind that comes with greater financial security.
What is CEI?
What does CEI stand for? In accounting, CEI stands for Collection Effectiveness Index. The collection effectiveness index is used to measure how well the company is doing with its AR collection efforts. The CEI is given in percentage form: A higher percentage means a better collection rate.
It takes into account the total amount of cash collected compared to the total amount of invoices during that same period. If the construction company is able to collect most of the payments during that time, they will have a high CEI. If the invoices go unpaid, they will have a low CEI.
Why Is CEI Important?
The CEI score shows how many of your invoices are collected on time and where you may be falling short. But why is CEI important? What makes it such a critical KPI to track for your business? Here are some of the key reasons:
1. Clarity on Collection Practices
CEI provides clarity on the effectiveness of your collection by quantifying the process. It is important to know how well your collection process is working and where it can be improved. By monitoring the CEI, you can clearly identify any inefficiencies and prioritize areas for improvement.
2. Regular Assessments
The CEI is a good way to measure how good your collection efforts are on a regular basis, usually once a month. This lets you make changes to your process so you can get the best results possible. For construction businesses, where cash flow is very important, regular assessments of CEI can help to ensure a steady stream of revenue.
3. Long-Term Assessments
CEI not only gives you regular assessments but also helps you check your collection efforts over long periods of time. By keeping track of your CEI over months or years, you can see if your collection process is getting better or not and make the changes you need. In the long run, this will assist your construction company's bottom line.
4. Identifying Issues
A low CEI score can mean that there are problems