Collection effectiveness index: How to calculate your debt recovery

Your board wants clearer cash forecasting. Your lender wants fewer surprises. Your aged-debtors report looks fine. But cash continues to arrive late.

With time, the pattern becomes even more predictable: the same invoices become month-old acquaintances, and there's this frustrating reality that, while the company is profitable on paper, it struggles to make payroll.

Dozens of finance experts' interviews prove this is a fundamental issue for most teams.

This common disconnect typically points to a measurement gap in your collections strategy. What's owed and what's in hand don't match. Luckily, CEI is the first step in closing that gap.

This guide introduces the Collection Effectiveness Index (CEI) as the indispensable metric to bridge that gap. You’ll discover the industry benchmarks that genuinely matter, actionable frameworks tailored to your CEI scores, and free accounts receivable management templates to put it all into motion. 

It’s time to move beyond the dread and optimize your debt recovery.

What is the Collection Effectiveness Index (and why it matters)

The Collection Effectiveness Index (CEI) is a collections‑performance metric that compares what was actually collected in a period against what could have been collected. The CEI is measured in percentage and reveals how well your business is collecting its outstanding debts over a specific period. 

In simpler terms, it tells you if your efforts to recover money owed to you are actually working. A CEI of 100% signifies that you've collected every single dollar that was reasonably collectible during the period, excluding those that were perhaps already deemed uncollectible or written off. 

Due to its importance in cashflow management, CEI is considered a direct indicator of your accounts receivable health and, by extension, your company’s cash flow efficiency. 

A high CEI means you’re doing an excellent job of converting your invoices into actual cash, which is crucial for funding operations, making investments, and maintaining liquidity.

A lower CEI, conversely, indicates that a significant portion of your collectible receivables remains outstanding, pointing to potential inefficiencies in your collection processes.

Why does the Collection Effectiveness Index beat other collection metrics

While other metrics offer valuable insights, the CEI provides a more holistic and actionable view of your collection performance. Days Sales Outstanding (DSO), for instance, tells you the average number of days it takes to collect payments, focusing on speed.

Accounts receivable aging reports, on the other hand, show you how old your outstanding invoices are, highlighting potential problem accounts. 

CEI, however, directly measures the effectiveness of your collection activities. It goes beyond mere timing or age to show you if your strategies are actually yielding results. This makes CEI an incredibly powerful tool for identifying areas for immediate improvement in your debt recovery process.

Here's a quick comparison:

How to calculate Collection Effectiveness Index

To calculate the collection effectiveness index, follow this process:

• Add Beginning AR and Credit Sales.
  
  
• Subtract Ending AR.
  
  
• Subtract Ending Current AR from the denominator.
  
  
• Divide actual collections by collectible amounts.
  
  
• Multiply by 100 to express as a percentage.

That way, you can accurately estimate what you actually collected versus what you could have collected. Need a more practical scenario? See the CEI formula below and two practical examples. 

CEI Formula:

The CEI formula is: 

Where:

• Beginning Accounts Receivable (BAR): The total outstanding receivables at the start of the collection period.
  
  
• Credit Sales (CS): The total amount of new credit sales made during the period.
  
  
• Ending Accounts Receivable (EAR): The total outstanding receivables at the end of the collection period.
  
  
• Current Accounts Receivable (CAR): This represents receivables that are not yet due (i.e., still within their standard payment terms) at the end of the period. This figure is crucial as it excludes amounts that haven't even had a chance to be collected yet, focusing the CEI on what was actually collectible.
  
  

CEI calculation walkthroughs examples for steady state and spiky state scenarios:

Example 1 – “steady‑state” business (low disputes)

A UK recruitment agency has stable monthly sales and few disputes. All values are net of VAT.

• Beginning receivables (1 Sep 2025): $120,000
  
  
• Credit sales during September: $90,000
  
  
• Ending total receivables (30 Sep 2025): $115,000 (contains $80,000 current and $35,000 overdue)
  
  
• Ending current receivables: $80,000
  
  

Steps:

1. Compute the available to collect (denominator): Beginning AR + Credit sales – Ending current AR = $120,000 + $90,000 – $80,000 = $130,000.
   
   
2. Compute the actual collected (numerator): Beginning AR + Credit sales – Ending total AR = $120,000 + $90,000 – $115,000 = $95,000.
   
   
3. Calculate CEI: 95 000130 000×100=73.1 \frac{95\,000}{130\,000}\times 100 = 73.1 %13000095000​×100=73.1 .

This company collected about 73% of the money available to be collected in September. The remaining $35,000 of past‑due invoices and any uncollected credit sales are rolled forward.

Example 2 – “spiky” case (seasonality and disputes)

A private school bills students termly; September includes the autumn term invoice ($300,000) and numerous bursary disputes.

• Beginning receivables (1 Sep 2025): $50,000 (previous term balance)
  
  
• Credit sales during September: $300,000 (term invoices net of $10,000 credit notes)
  
  
• Ending total receivables (30 Sep 2025): $270,000 (includes $180,000 current and $90,000 overdue/disputed)
  
  
• Ending current receivables: $180,000 (includes $20,000 on payment plans)
  
  

1. Available to collect: 50,000 + 300,000 – 180,000 = $170,000.
   
   
2. Collected: 50,000 + 300,000 – 270,000 = $80,000.
   
   
3. CEI: 80 000170 000×100≈47.1 \frac{80\,000}{170\,000}\times 100 \approx 47.1 %17000080000​×100≈47.1 .

A CEI of 47 % reflects that a large portion of term invoices remain outstanding due to payment plans and disputes; management should investigate invoice accuracy and bursary approvals.

Note how the term‑billing seasonality can cause CEI to drop sharply even when collections teams are busy; smoothing with a rolling quarter may provide better insight.

The three ranges of CEI scores and what they say about your business health

Your CEI score points you toward specific actions to improve your cash flow. The appropriate steps depend heavily on where your score falls.

If your score is below 70% (crisis mode)

When your CEI is below 70%, you're in a critical situation that demands immediate, impactful action. Your primary goal is to stabilize cash flow within 30 days.

This means implementing aggressive tactics such as daily collection calls to overdue accounts, offering early payment discounts (e.g., "2/10 net 30" – 2% discount if paid within 10 days, otherwise full amount due in 30), and placing credit holds on new orders for delinquent customers. 

Once immediate crises are addressed, focus on quick wins like setting up payment plans to ensure partial cash flow, accepting credit card payments despite associated fees, and, if truly desperate, considering invoice factoring.

If your score is around 70-85% (improving processes)

A CEI in this range indicates that while you're collecting adequately, there's significant room to improve your underlying processes. The focus here is on systematic, sustainable improvements over 60-90 days.

Implement automated credit control, invoice delivery, and reminder sequences, embed direct payment links on all invoices, and develop segmented collection strategies for your top 20% of accounts receivable. The goal is to build robust systems that reduce the need for heroic, last-minute collection efforts.

If your score is above 85% (optimizing tactics)

A CEI above 85% indicates a strong, mature collection process. Now, the objective is to optimize for those last few percentage points and achieve best-in-class performance.

This involves advanced moves such as leveraging predictive analytics to identify payment patterns, implementing dynamic discounting strategies based on customer behavior, and introducing customer self-service portals.

These tactics are for businesses that have mastered the basics and are ready to refine their approach for maximum efficiency.

Want to calculate your CEI now? Learn these common mistakes and avoid them

Calculating your CEI accurately is paramount, as errors can lead to misleading insights and poor decision-making. Here are the "big three" common mistakes to avoid:

1. Including cash sales: Including cash sales in your calculation inflates the "Beginning Accounts Receivable" and "Credit Sales" figures, making your collection efforts appear more successful than they actually are. Stick to credit sales only for an accurate representation.
   
   
2. Ignoring credits and returns: Any customer credits or product returns that reduce the amount owed must be factored into your "Ending Accounts Receivable" and "Credit Sales" figures. Failing to adjust for these legitimate reductions will artificially inflate the amount you should have collected, thus lowering your CEI and misrepresenting your true performance.
   
   
3. Not handling partial payments properly: Ensure that partial payments are accurately recorded and reduce the outstanding Ending Accounts Receivable balance. Sometimes, these can be overlooked or incorrectly categorized, leading to an overestimation of outstanding debt and an inaccurate CEI.

Additionally, relying on a single, aggregated CEI for all customers can mask significant issues within specific segments.

For example, a high overall CEI might hide poor collection rates from a particular industry, customer size, or payment term group. Segmenting your CEI by customer type or other relevant criteria can reveal hidden problems and allow for targeted collection strategies.

While automated accounts receivable tools can greatly simplify tracking these complexities and ensure accurate calculations, understanding these manual calculation nuances is essential for interpreting your CEI and making informed business decisions.

These mistakes make the metric useless for decisions if not properly accounted for.

Best practices for effective CEI measurement

• Plan for dispute and short-pays: CEI should not change simply because receivables were adjusted for disputed items. Remove disputed amounts from the ending current receivables and credit sales until resolved.
  
  
• Be mindful of partial payments:  Partially paid invoices reduce ending total receivables; ensure that allocations are applied correctly to avoid understating receivables. Document how partial settlements are aged (e.g., by invoice due date or by outstanding balance proportion).
  
  
• Reconcile unapplied cash: Reconcile unapplied cash before calculating CEI. Otherwise, it inflates receivables and depresses CEI.
  
  
• Deduct credit note and discounts: Deduct credit notes from credit sales and adjust the ending current receivables. Failure to adjust will overstate the available to collect and artificially lower the CEI.
  
  
• Exclude bad‑debt write‑offs: Write‑offs remove balances from both numerator and denominator; record them separately to preserve trend analysis. When using CEI for performance measurement, exclude extraordinary write‑offs to avoid misinterpreting collection effectiveness.
  
  
• Disclose factoring & assignment separately: If receivables are sold or factored, remove them from both beginning and ending balances; include cash proceeds in collections. Disclose factoring separately to avoid boosting CEI artificially.

Want a faster path to improving your cash-flow metrics? Download this free toolkit

Get instant access to 20 new and improved collection templates to warm up customers and unlock unpaid cash today. From gentle prompts to firm notices, these templates provide you with the words you need to encourage timely payments while remaining professional and polite.

Improve your CEI with accounts receivable with automation

While the CEI is a powerful metric, it's one piece of a larger puzzle. To unlock the full potential of your accounts receivable processes, you need to track several KPIs in one place. Relying on isolated data points can lead to an incomplete picture and reactive decision-making. 

You can tackle your entire AR process in Chaser by eliminating the manual process of gathering all those metrics, providing a comprehensive, automated view of your financial health.

Chaser centralizes your AR data and automates the tracking of various KPIs. This allows you to move beyond mere reporting to proactive, data-driven strategies that optimize your debt recovery and significantly improve cash flow.

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