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Collection Efficiency Formula + Free Calculator

Measure your accounts receivable collection performance and identify opportunities for improvement

Collection Effectiveness Index (CEI) measures how effectively you collect receivables within credit terms:

CEI of 100% means all receivables were collected within terms
Industry average CEI ranges from 70-85% depending on sector
Higher CEI indicates better collection processes and cash flow
Used by credit controllers and CFOs to benchmark AR performance

Calculate your CEI to identify collection improvement opportunities and benchmark against industry standards.

CEI Formula & Calculation

CEI = (Beginning AR + Credit Sales - Ending AR) ÷ (Beginning AR + Credit Sales - Current AR) × 100

Where: Beginning AR = Receivables at start of period, Credit Sales = Sales made on credit during period, Ending AR = Total receivables at end of period, Current AR = On-time receivables (within terms) at period end

Enter Your AR Data

Reporting Period

Choose your reporting period for CEI calculation

Beginning AR Balance

Total receivables at start of period

Credit Sales

Total sales made on credit during the period

Ending Total AR

Total receivables at end of period (including overdue)

Ending Current AR (Within Terms)

Receivables at period end that are still within credit terms

Industry (Optional)

Compare your CEI against industry benchmarks

Credit Terms

Your standard payment terms

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This CEI calculator provides estimates based on your AR data inputs. Industry benchmarks based on research from credit management associations and Paidnice customer data. Results may vary based on industry, company size, and collection practices.

Understanding Collection Effectiveness Index (CEI) - Complete Guide | Paidnice

Understanding Collection Effectiveness Index (CEI)

The Collection Effectiveness Index (CEI) is a critical accounts receivable metric that measures how effectively your organization collects outstanding receivables within the specified credit terms. This comprehensive guide explains everything finance professionals need to know about calculating, interpreting, and improving CEI performance.

What is Collection Effectiveness Index (CEI)?

Collection Effectiveness Index (CEI) is a financial metric that quantifies the effectiveness of a company's accounts receivable collection process. Unlike DSO (Days Sales Outstanding), which measures the time it takes to collect receivables, CEI measures the percentage of receivables collected within the established credit terms.

CEI is expressed as a percentage, where 100% indicates that all receivables were collected within the credit terms period. The metric provides credit managers and CFOs with actionable insights into collection efficiency and helps identify areas for process improvement.

CEI Calculation Formula

CEI = [(Beginning AR + Credit Sales - Ending AR) ÷ (Beginning AR + Credit Sales - Current AR)] × 100

Where:
• Beginning AR = Accounts receivable balance at start of period
• Credit Sales = Total credit sales during the measurement period
• Ending AR = Total accounts receivable balance at end of period
• Current AR = Receivables within credit terms at period end (not overdue)

CEI Formula Components Explained

Understanding Each Component

Beginning AR Balance

The total accounts receivable balance at the beginning of your measurement period. This includes all outstanding invoices regardless of age.

Credit Sales

Revenue generated from sales made on credit terms during the period. Excludes cash sales and returns/allowances.

Ending Total AR

The complete accounts receivable balance at period end, including both current (within terms) and overdue receivables.

Current AR (Within Terms)

The portion of ending AR that is still within the established credit terms and not yet overdue for payment.

Key Calculation Concepts:

Amount Collected = Beginning AR + Credit Sales - Ending AR
Amount Available to Collect = Beginning AR + Credit Sales - Current AR
CEI = (Amount Collected ÷ Amount Available to Collect) × 100

CEI Calculation Examples

Example 1: Manufacturing Company (Monthly CEI)

Beginning AR Balance

$150,000

Credit Sales (Month)

$200,000

Ending Total AR

$180,000

Ending Current AR

$140,000

Step 1: Amount Collected = $150,000 + $200,000 - $180,000 = $170,000

Step 2: Amount Available = $150,000 + $200,000 - $140,000 = $210,000

Step 3: CEI = ($170,000 ÷ $210,000) × 100 = 81.0%

CEI Result: 81.0% - Good performance for manufacturing industry

Example 2: Technology Services Company (Quarterly CEI)

Beginning AR Balance

$75,000

Credit Sales (Quarter)

$300,000

Ending Total AR

$95,000

Ending Current AR

$85,000

Step 1: Amount Collected = $75,000 + $300,000 - $95,000 = $280,000

Step 2: Amount Available = $75,000 + $300,000 - $85,000 = $290,000

Step 3: CEI = ($280,000 ÷ $290,000) × 100 = 96.6%

CEI Result: 96.6% - Excellent performance exceeding technology industry average

CEI Performance Benchmarks and Industry Standards

Understanding what constitutes good CEI performance is crucial for benchmarking your collection effectiveness. According to leading industry sources and research organizations, CEI benchmarks vary based on industry characteristics and market conditions.

General CEI Performance Standards:

85% and above: Excellent performance (Quadient AR research, HighRadius analysis)
80-84%: Good performance (Allianz Trade benchmarks)
70-79%: Fair performance, improvement needed
Below 70%: Poor performance, requires immediate attention

Note: Top-performing companies often achieve CEI scores of 90% or higher according to Emagia's industry analysis.

Industry-Specific Considerations

While comprehensive industry-specific CEI data is limited, research from organizations like APQC (American Productivity & Quality Center) and NACM (National Association of Credit Management) indicates that CEI performance varies by industry due to factors such as:

Healthcare Revenue Cycle

95%+ target

Healthcare RCM studies suggest higher targets due to insurance processing requirements (MD Clarity benchmarks)

Technology/SaaS

85-90% typical

Subscription models and automated billing systems support higher CEI performance

Manufacturing

80-85% range

B2B transactions with established payment terms, tracked by NACM Credit Managers' Index

Construction

70-80% typical

Project-based billing and payment disputes impact collection timing

Food & Beverage

75-85% range

Industry-specific data available through APQC benchmarking studies

Utilities

80-90% range

Regulated industry with consistent payment patterns, data from APQC utility benchmarks

Important Benchmarking Considerations:

Economic conditions: CEI performance fluctuates with economic cycles and customer cash flow
Payment terms: Longer payment terms (Net 60 vs Net 30) may result in higher CEI scores
Customer mix: B2B vs B2C customers have different payment behaviors
Company size: Larger organizations often have more resources for collection processes

For the most accurate benchmarking, compare your CEI against companies of similar size, industry, and customer profile. Organizations like The Hackett Group provide detailed industry-specific working capital benchmarks.

Evidence-Based Strategies to Improve Collection Effectiveness Index

Based on research from leading organizations and AR automation studies, the following strategies have proven most effective at improving CEI performance:

Automate Payment Reminders and Workflows

Research from HighRadius shows that automated collection workflows can improve CEI by enabling collectors to send 3x more personalized emails and increase customer coverage by 10x. Aberdeen Group studies indicate that best-in-class companies clear payments 80% faster through automation.

Strengthen Credit Policies and Assessment

Conduct thorough credit checks and regularly review customer creditworthiness. The Credit Research Foundation emphasizes the importance of establishing collectability benchmarking processes to predict payment behavior and reduce risk.

Optimize Invoice Processing and Accuracy

Aberdeen Group research shows that best-in-class organizations manually process 70% fewer invoices and have 36% fewer invoices subject to disputes, directly improving collection effectiveness.

Implement Multiple Payment Options

Provide convenient payment methods including online portals, ACH transfers, and mobile payment options. Industry analysis shows that increased payment convenience leads to faster collections and reduced overdue accounts.

Use Predictive Analytics for Collections

Advanced AR platforms leverage AI and machine learning to predict payment behavior, prioritize high-risk accounts, and recommend optimal collection strategies, significantly boosting CEI performance.

Regular Performance Monitoring and Benchmarking

Track CEI monthly alongside DSO and aging reports. The Hackett Group's working capital studies emphasize that world-class companies examine the entire customer-to-cash process to identify improvement opportunities.

Research-Backed Automation Benefits:

15-35% CEI improvement: Typical results from implementing AR automation (HighRadius customer data)
3x more collection outreach: Automated systems enable significantly more customer touchpoints
80% faster payment clearance: Aberdeen Group research on best-in-class performance
70% reduction in manual processing: Automation reduces administrative burden

Frequently Asked Questions About CEI

What is a good Collection Effectiveness Index (CEI) score?

According to industry research, a CEI above 85% is considered excellent performance (Quadient AR, HighRadius). Scores of 80-84% indicate good performance (Allianz Trade), while below 70% suggests significant collection issues. Top-performing companies often achieve 90% or higher (Emagia analysis). However, benchmarks vary by industry - healthcare revenue cycle management targets 95%+ according to specialized RCM studies.

How often should CEI be calculated?

CEI should be calculated monthly for optimal accounts receivable management. Monthly calculations provide timely insights into collection performance and allow for quick corrective actions. The Hackett Group's working capital research emphasizes regular monitoring as a best practice for world-class AR performance. Quarterly calculations are acceptable for stable businesses, but monthly tracking is recommended for dynamic environments.

What's the difference between CEI and DSO?

CEI measures collection effectiveness (percentage of receivables collected within terms), while DSO measures collection speed (average days to collect all receivables). As explained in financial metrics analysis, CEI focuses on quality of collections processes, whereas DSO reflects timing. Industry experts recommend using both metrics together for comprehensive AR performance assessment.

Can CEI be over 100%?

No, CEI cannot mathematically exceed 100%. A CEI of 100% means all available receivables were collected within credit terms. If calculations show over 100%, there's likely an error in the Current AR figure or data input. Oracle's CEI documentation confirms this mathematical limitation in their enterprise software implementations.

What causes low CEI performance?

Research from The Credit Research Foundation identifies common causes: inadequate credit screening, delayed invoicing, lack of systematic follow-up, poor customer communication, complex payment processes, and weak collection procedures. NACM's Credit Managers' Index also tracks how economic factors affect customer cash flow and collection performance across industries.

How does automation improve CEI?

Aberdeen Group research shows that best-in-class companies achieve 80% faster payment clearance through automation. AR automation studies demonstrate that companies typically see 15-35% improvement in CEI through automated reminders, systematic escalation, reduced errors, and consistent follow-up processes. Automation also enables 10x customer coverage according to industry data.

Should write-offs be included in CEI calculations?

Write-offs should be excluded from CEI calculations as they represent uncollectable receivables. Financial experts note that including write-offs would artificially inflate CEI by reducing the denominator. CEI measures collection effectiveness on collectible receivables within terms. For accurate calculations, separate write-offs from the analysis period.

How do payment terms affect CEI?

Longer payment terms (Net 60 vs Net 30) typically result in higher CEI scores as customers have more time to pay within terms. However, working capital experts caution that this may negatively impact cash flow. The key is finding optimal balance between CEI performance and cash flow management, considering your specific business model and industry standards documented by organizations like APQC.

Additional Resources for CEI Research:

National Association of Credit Management (NACM): nacm.org - Industry association with credit management benchmarks
APQC Benchmarking: apqc.org - Industry-specific accounts receivable performance data
The Hackett Group: thehackettgroup.com - Working capital and AR benchmarking research
Credit Research Foundation: crfonline.org - Academic research on collection effectiveness

Improve Your Collection Effectiveness with Paidnice

Automate your accounts receivable process and boost your CEI performance

✓

Automated payment reminders and escalation workflows

✓

Real-time CEI tracking and performance dashboards

✓

Intelligent customer communication and follow-up

✓

Integration with your existing accounting systems

✓

Detailed analytics and collection performance insights

✓

Improve CEI by 15-35% with automated processes

Collection Efficiency Formula + Free Calculator

CEI Formula & Calculation

Enter Your AR Data

Your Collection Effectiveness Index Results

Calculation Breakdown

Performance Analysis

Industry Benchmark

Improvement Recommendations

Improve Your CEI with Paidnice Automation

Understanding Collection Effectiveness Index (CEI)

What is Collection Effectiveness Index (CEI)?

CEI Formula Components Explained

Understanding Each Component

Key Calculation Concepts:

CEI Calculation Examples

CEI Performance Benchmarks and Industry Standards

General CEI Performance Standards:

Industry-Specific Considerations

Important Benchmarking Considerations:

Evidence-Based Strategies to Improve Collection Effectiveness Index

Research-Backed Automation Benefits:

Frequently Asked Questions About CEI

Additional Resources for CEI Research: