Evrenus Fırat Polat · ·
DSO tells you how long collection takes, but it moves when sales volume changes, even if your collection process hasn't. The Collection Effectiveness Index focuses more directly on the question that matters: of everything that was collectible in a period, how much did you actually collect?
How it's calculated
CEI = (Beginning receivables + Credit sales for the period − Ending total receivables) ÷ (Beginning receivables + Credit sales for the period − Ending current receivables) × 100.
The top half is what you actually collected. The bottom half is what was collectible: everything owed, minus what isn't due yet. "Current" receivables are invoices not yet past their due date. Our collection effectiveness index calculator does the math once you enter the four figures.
Worked example
A print shop has these figures for one month:
- Beginning receivables (1st of the month): $60,000
- Credit sales for the month: $45,000
- Ending total receivables: $55,000
- Ending current (not yet due) receivables: $38,000
Step 1, amount collected: $60,000 + $45,000 − $55,000 = $50,000.
Step 2, amount collectible: $60,000 + $45,000 − $38,000 = $67,000.
Step 3, CEI: $50,000 ÷ $67,000 × 100 = 74.6%.
So about three quarters of the money that was due got collected. The other $17,000 ($55,000 − $38,000) is overdue at month end. If the shop collects $5,000 more of it next month by following up earlier, the following month's CEI will move up. Compare this with the DSO: a busy month would push DSO up, but the CEI figure stays focused on collection itself.
Reading the result
CEI is a percentage, and closer to 100% is better. 100% would mean you collected everything that was due during the period. A figure consistently in the 80s or 90s generally indicates an effective process. A falling CEI means an increasing share of due money is slipping past its due date uncollected. These ranges are rules of thumb, not standards. Your own trend matters more than any benchmark.
Why use it alongside DSO
A strong sales month can make DSO look worse even when collection is working fine, because receivables rise with sales. CEI adjusts for that by comparing collections against what was actually due. Watching both gives a clearer picture. If DSO rises but CEI holds steady, the change is likely sales-driven. If both deteriorate together, collection itself is slipping.
Step by step: calculating CEI each month
- Pick a period, usually one month or one quarter.
- Write down total receivables on the first day of the period.
- Add total credit sales invoiced in the period.
- Write down total receivables on the last day of the period.
- From the aging list, take the part not yet due on the last day. That is ending current receivables.
- Calculate the numerator and denominator, then divide.
- Record the result in a simple table next to previous months.
Improving it
A low CEI points at the collection process specifically. Common causes:
- Follow-up that starts too late (see invoice follow-up)
- Overdue invoices that don't get escalated (see overdue invoices)
- Disputes left unresolved (see invoice disputes)
- Unclear or inconsistent payment terms
Fixing whichever of these is the bottleneck tends to move CEI within a period or two.
Common mistakes
- Counting disputed or credited invoices as collectible. Adjust receivables for credit notes first.
- Mixing up "current" and "total". Current means not yet due. Using the wrong one makes the result meaningless.
- Using different periods. Beginning and ending figures must belong to the same period.
- Comparing a month with a quarter. Longer periods tend to give different results.
- Obsessing over one reading. Small businesses with a few large invoices see large swings. Look at three-month trends.
Track it monthly
Like most receivables metrics, a single CEI reading says less than the trend. Calculating it monthly, alongside your aging report, turns it into an early warning rather than a post-mortem. If you are new to these measures, accounts receivable basics explains how they fit together.
FAQ
What is a good CEI?
Many businesses aim for 80% or higher, but the right level depends on your terms and clients. Use your own history as the main benchmark.
Can CEI go over 100%?
It can, if you collect old overdue invoices in addition to everything due in the period. Treat that as a sign that you caught up, not as a permanent target.
Is CEI better than DSO?
Neither is better. DSO shows speed. CEI shows effectiveness. They answer different questions and work best together.
Do I need accounting software to calculate it?
Not for a small business. You need four numbers, and most invoicing tools or a spreadsheet can produce them.