18 Feb 2024

Master Collection Effectiveness Index (CEI)

Subhasis Sahoo (Founding Member - Marketing)

For any business, ensuring smooth cash flow is vital. The Collection Effectiveness Index (CEI) serves as a powerful tool to assess and analyze your performance in collecting payments from customers.

This blog dives into the intricacies of CEI, equipping you with the knowledge to calculate, interpret, and ultimately leverage it for success.

What is Collection Effectiveness Index (CEI)?

Simply put, CEI measures the percentage of accounts receivable (AR) that your company successfully collects within a specific timeframe. It reflects the efficiency and effectiveness of your collection efforts, providing valuable insights into your financial health.

Formula & Calculation

Calculating CEI is straightforward:

CEI = (Total Cash Collected During Period / Average Ending AR Balance) x 100%

Here’s what each component signifies:

  • Total Cash Collected During Period: The total amount of money received from customers towards outstanding invoices during the chosen period (e.g., month, quarter).
  • Average Ending AR Balance: The average value of unpaid invoices at the end of each day within the chosen period. This is calculated by adding the ending AR balance each day and dividing by the number of days.


Let’s assume your company collected $100,000 in cash during a month, and the average ending AR balance for the month was $50,000.

CEI = ($100,000 / $50,000) x 100% = 200%

Interpreting the Collection Effectiveness Index

While a higher CEI generally indicates better collection performance, the desired benchmark can vary depending on several factors:

  • Industry: Each industry has its own payment norms, so compare your CEI to industry averages.
  • Credit Terms: Companies with stricter credit terms might naturally have a lower CEI.
  • Collection Strategies: Proactive collection practices usually lead to a higher CEI.

However, a CEI above 100% raises questions. It could indicate inaccurate reporting or aggressive collection practices leading to early payments. Aim for a sustainable and industry-relevant CEI that reflects efficient collection efforts.

Beyond the Number: Using CEI Effectively

The true value of CEI lies in its ability to uncover areas for improvement and track progress:

  • Identify Problem Accounts: Analyzing CEI by customer segment or age of invoices can help pinpoint accounts requiring earlier intervention.
  • Evaluate Collection Strategies: Compare CEI across different collection methods to see which are most effective.
  • Track Performance Over Time: Monitor trends in CEI to assess the impact of changes in credit terms, collection teams, or industry conditions.
  • Benchmarking: Compare your CEI to competitors or industry benchmarks to gauge your relative performance.

Beyond CEI: A Holistic Approach

While CEI offers valuable insights, remember it’s just one piece of the puzzle. Consider these additional metrics for a comprehensive picture:

  • Days Sales Outstanding (DSO): Measures the average time it takes to collect payments. Combine DSO and CEI for a deeper understanding.
  • Percentage of Invoices Paid on Time: Shows the proportion of customers paying within your credit terms.
  • Collection Effort Costs: Tracks expenses associated with your collection activities.

Optimizing Your CEI

Several strategies can boost your CEI:

  • Offer Early Payment Discounts: Incentivize timely payments.
  • Streamline Invoicing: Ensure invoices are clear, accurate, and sent promptly.
  • Implement Automated Reminders: Send gentle reminders before invoices become overdue.
  • Segment Customers: Tailor collection strategies based on customer profiles and payment history.
  • Train Your Collection Team: Equip them with effective communication and negotiation skills.


By understanding and leveraging the Collection Effectiveness Index, you gain valuable insights into your collection effectiveness, enabling you to optimize your processes, manage cash flow efficiently, and ultimately foster a financially healthy business. Remember, CEI is just one metric, but when combined with other financial data and strategic action, it becomes a powerful tool for driving profitable growth.

Boost your Collection Effectiveness Index (CEI) today! Discover the secrets to collecting payments faster and improving your cash flow with our comprehensive guide to CEI. Talk to our experts now.