# How to Calculate Collection Effectiveness Index (CEI)

The **Collection Effectiveness Index (CEI)** reveals how efficiently your business converts *collectible* credit sales into cash within a chosen period. Unlike Days Sales Outstanding (DSO), CEI ignores invoices that are still within agreed terms, giving a sharper view of your collection team’s performance.

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## 1  What is CEI?

> **Definition**  CEI is the percentage of receivables that were *actually collectible* during the period **and** were successfully collected.

A CEI of **100 %** means every due rupee was collected; **80 %** means 20 % slipped past term.

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## 2  The Formula

* **Opening AR** — receivables at the start of the period
    
* **Credit Sales** — invoices raised in the period (exclude cash sales)
    
* **Closing AR** — total receivables at period‑end
    
* **Closing Current AR** — portion of Closing AR still within credit terms
    

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## 3  Step‑by‑Step Example (April 2025)

| Metric | ₹ Value |
| --- | --- |
| Opening AR (1 Apr) | 10,00,000 |
| Credit Sales (Apr) | 15,00,000 |
| Closing AR (30 Apr) | 12,00,000 |
| — of which still current | 4,00,000 |

1. **Collected Amount** (numerator)  = 10,00,000 + 15,00,000 − 12,00,000 = **13,00,000**
    
2. **Collectible Amount** (denominator)  = 10,00,000 + 15,00,000 − 4,00,000 = **21,00,000**
    
3. **CEI**  = (13,00,000 ÷ 21,00,000) × 100 ≈ **61.9 %**
    

Interpretation: Only ~62 % of the cash that *should* have come in during April actually arrived.

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## 4  Benchmark Guide

| CEI (%) | Assessment |
| --- | --- |
| **95 – 100** | Excellent |
| **85 – 94** | Good |
| **70 – 84** | Average |
| **< 70** | Needs attention |

Targets vary by sector—manufacturing firms may tolerate ≥ 85 %, while subscription SaaS aims for ≥ 90 %.

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## 5  How to Lift Your CEI

* **Prioritise Early Reminders** – Send friendly nudges three days before due.
    
* **Segment Follow‑ups** – Focus calls on the 31–60‑day bucket.
    
* **Automate Dunning** – Tools like **PayAssured** schedule escalating emails, WhatsApps, and credit holds.
    
* **Offer Friction‑Free Payments** – Include UPI links or QR codes in every reminder.
    
* **Align Sales Incentives** – Tie part of commissions to CEI or on‑time payment ratios.
    

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## 6  Tracking CEI in a Dashboard

> **Quick setup:** In Excel or Google Sheets, store monthly Opening AR, Credit Sales, Closing AR, and Current AR. Use formula cells to auto‑calculate CEI and plot a line chart.

Platforms like **PayAssured** pull data straight from your ERP and display real‑time CEI—no spreadsheets required.

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## 7  Common Pitfalls

* Including **cash sales** in Credit Sales—distorts denominator.
    
* Counting **disputed invoices** as collectible—exclude until resolved.
    
* Forgetting **credit notes**—use *net* Credit Sales.
    

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## 8  Key Takeaways

* **CEI measures collection efficiency**, not just ageing.
    
* Calculate monthly; aim for an upward trend toward 85 % +.
    
* Use automation, segmentation, and proactive outreach to close gaps.
    
* A rising CEI means healthier cash flow and fewer borrowing costs.
    

> **Remember:** High CEI shows discipline. Make it a board‑level KPI.