Collection Effectiveness Index (CEI)

See Also:
Key Performance Indicators (KPI’s)
How Does a CFO Bring Value to a Company?
5 Stages of Business Grief

Collection Effectiveness Index (CEI)

The Collection Effectiveness Index, also known as CEI, is a calculation of a company’s ability to retrieve their accounts receivable from customers. CEI measures the amount collected during a time period to the amount of receivables in the same time period. In comparison, the collection effectiveness index is slightly more accurate than daily sales outstanding (DSO) because of the time period. A company’s CEI can be calculated for any amount of time, small or large. Conversely, DSO is less accurate with shorter time periods, which is why DSO is calculated every 3 to 6 months.

The Collection Effectiveness Index Formula

Collection Effectiveness Index

The formula consists of the sum of beginning receivables and monthly credit sales, less ending total receivables. Then, divide that by the sum of beginning receivables and monthly credit sales, less ending current receivables. The value is then multiplied by 100 to get a percentage, and if a CEI percentage is close to or equals to 100%, then that means that the collection of accounts receivables from customers was most effective.

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CEI and Your Business

The collection effectiveness index is one of the most useful tools a company can use to monitor the business financials. It measures the speed of converting accounts receivables to closed accounts, which then indicates new methods or procedures one can use to retrieve accounts receivables even more. If the CEI percentage decreases, then that’s a key performance indicator that the company needs to put in place in policies or investigate the departments in more detail.

How to Increase a Company’s CEI

Among other ways to reduce accounts receivable, the collection effectiveness index alerts when and how to change the process of retrieving those accounts. By monitoring cash in a company more frequently, financial leaders will notice a pattern and are more inclined to make a change quicker. Changing your policy from checking 3 times a year to 6 or 8 times a year, and the results that come from it, will show a substantial difference in a company.

Collection Effectiveness Index

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Collection Effectiveness Index

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8 Responses to Collection Effectiveness Index (CEI)

  1. Angel H May 22, 2016 at 9:17 pm #

    Thanks for sharing this very informative information, I really enjoyed it. I have been researching various ways to better the small business success rate and I find myself reading many articles on your site. Keep up the good work, and thanks again.

  2. AbideenA September 30, 2016 at 4:30 am #


    Kindly expatiate more on the difference Ending Total Receivable and Ending Current Receivable.Thank you

    • Chick May 12, 2017 at 3:22 am #

      Miss AbideenA, Ending Total Receivable is the total portfolio including delinquent ones; Ending Current Receivable excludes the delinquent portfolio

  3. Ronald Raadsveld October 11, 2017 at 2:52 pm #

    Hi, interesting figure. I had the same question as Abideen, but the given answer is rising new question: does it matter what the definition of delinquent is (litigation files, more than e.g. 90 days overdue, all overdue receivables etc.? Does this figure solve the issue that DSO figure is too limited as you need to know the payment term granted as well to show effectiveness of credit management?

  4. JS January 17, 2018 at 10:26 pm #

    Hi, good article. I have a question on the denominator in the formula.

    If the denominator is to reflect the total AR outstanding for the period why do you subtract the current AR balance. Isn’t this a collectible amount that should be included?

    So wouldn’t the formula make more sense to be the Numerator/Beginning Receivables + Credit Sales

    The denominator would be the true AR balance wouldn’t it be?

  5. Siechig May 27, 2018 at 9:38 pm #

    I am thinking that as cei measures effectiveness of collections…those amounts in current are not yet eligible to retrieval based on payment terms granted e.g if its 30days

  6. Fahad September 20, 2018 at 4:19 pm #

    Is it essentially not a ratio between cumulative AR and collectible AR?

  7. Fahad W September 20, 2018 at 4:21 pm #

    Isn’t this in essence a ration of total receivable and collectible AR?

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