What Is the Collections Effectiveness Index (CEI)?

Last Updated October 22, 2025

Every business needs cash flow to survive. Unfortunately, not all companies effectively collect on unpaid invoices, which can lead to a lot of downstream issues. Worse yet, it can be difficult to pinpoint these collection issues until it’s too late.

That’s why businesses track their collections effectiveness index (CEI) score over time. This metric looks at how effectively your accounts receivable team turns outstanding invoices into cash. Since AR collections has a direct impact on profitability and cash flow, understanding your collections effectiveness index can help you build a stronger business.

In this guide, you’ll learn what CEI is, why it’s important, and how to calculate it. You’ll also learn what a good CEI score is and how to improve yours.

What Is the Collections Effectiveness Index (CEI)?

The collections effectiveness index measures how efficiently a business collects invoices over a specific period of time. CEI is an essential accounting acronym that, at its core, tells you how successful your company is at generating cash from invoices.

Unlike traditional aging reports, which only show overdue amounts, CEI in accounting focuses on performance. It monitors how many of your collectibles have actually been received during the time frame you’re measuring.

Tracking this score over time will help you better understand if late payments are a customer issue or if there’s a problem with your collections practices. By tracking CEI, finance teams can gain a better understanding of how collections fit into the broader context of cash management and financial reporting, which is essential for accurate business accounting.

Why Is the Collections Effectiveness Index Important?

How effective is your AR team at collecting payment? Think of CEI as a report card that demonstrates the effectiveness of your collections practices.

Tracking your collections effectiveness index over time also helps you better understand:

• Real performance: Unlike simple aging reports, a collections effectiveness index calculation shows how many collectible receivables your team has actually turned into cash within a set time frame. Since cash flow issues are one of the top reasons why small businesses fail, maintaining a high CEI is critical to long-term success. Monitoring this score over time will tell you if your AR practices are actually working.
• Cash flow efficiency: A strong CEI in accounting indicates effective credit control and a steady inflow of cash, which is critical for funding both daily operations and future growth.
• Which problems need addressing: When paired with a solid grasp of the accounts receivable process, CEI helps finance teams identify inefficiencies early and take proactive steps to improve cash flow. For example, instead of placing blame on late-paying customers, you might discover that your AR follow-ups aren’t effective enough. Fixing the real issue is a must for better performance, and CEI helps you understand which levers to pull in your business.
• Benchmarked performance: Knowing your collections effectiveness index benchmark helps you set realistic performance targets and measure progress against industry standards. For example, B2B companies may see lower CEI scores over short time frames. Knowing what’s normal in your industry will help you better understand if your performance is normal or if something needs to change.

How to Calculate Collections Effectiveness Index (With Formula)

The CEI formula looks long and complicated, but as long as you have the right inputs, you’ll be able to calculate your CEI in just a few seconds.

Use the collections effectiveness index formula to better understand your company’s performance:

CEI = (Beginning Receivables + Credit Sales – Ending Receivables – Write-Offs) / (Beginning Receivables + Credit Sales – Ending Current Receivables) x 100

While you can calculate this score manually, many business owners rely on accounting tools to do the math for them. This approach can definitely save time, but it’s also good to understand how to calculate collections effectiveness index manually so that you can double-check the results.

However, your CEI score tells just one part of the story. You should also compare your CEI results with other key metrics like days sales outstanding (DSO) to get a more complete picture of your collections process.

Collections Effectiveness Index Example

Here’s a simple collections effectiveness index example:

• Beginning receivables: $100,000
• Credit sales: $200,000
• Ending receivables: $90,000
• Write-offs: $10,000
• Ending current receivables: $60,000

($100,000 + $200,000 – $90,000 – $10,000) / ($100,000 + $200,000 – $60,000) X 100 = 83.3%

This CEI score indicates that your team successfully collected 83.3% of all receivables during this period. In some organizations, that might be a good score, while it might be too low for other businesses. By comparing your results with the collections effectiveness index benchmark for your industry, you can see whether your performance is above or below average.

Once you know how to calculate collections effectiveness index, you can monitor it over time. If your CEI results indicate underlying collections issues, it may be time to audit your cash flow and accounts receivable to identify gaps in your collection process.

What Is a Good Collections Effectiveness Index?

A “good” CEI is relative. It depends on your industry, company size, and business model. Still, you want your CEI score to be as close to 100% as possible, since a lower score implies that there are still unpaid invoices. A CEI of 100% indicates a perfect collections process.

In most cases, a collections effectiveness index above 90% is good. It shows that your team manages receivables efficiently and collects almost everything you’re owed.

Scores of around 80% to 90% are still considered good, although there may be minor issues that need addressing, such as certain problem clients. In these cases, you’ll need to analyze the situation carefully to determine if the issue lies with your AR workflows or is simply due to slow-paying clients. Anything below 80%, however, suggests bottlenecks, lax credit terms, and other issues on your end that could affect cash flow.

Ultimately, you know what’s normal for your business. That’s why it’s so important to set a collections effectiveness index benchmark. For example, B2B companies have much longer payment cycles than B2C, so you’ll likely see a lower CEI score over shorter periods of time as a B2B company.

How to Improve Collections Effectiveness Index

After tracking your CEI over time, you’ll get a better idea of where you stand. However, anything less than 100% means there’s room for improvement. Follow these small business accounting tips to improve your CEI and cash flow.

Know How to Write Effective Invoice Emails

Communication is everything. Customers are more likely to pay on time if you know how to write an invoice email that’s clear, professional, and polite. Make sure each message clearly outlines your invoice payment terms to avoid confusion about when and how payments are due. The easier you make it to pay, the faster customers will pay their invoices.

Follow Up on Payments

Don’t wait until invoices are overdue. Regularly following up with clients increases your chances of on-time or even early payment. Most accounting software includes automations that send reminders before, on, and after the due date to streamline follow-ups for your AR team.

Build Good Relationships With Customers

Goodwill goes a long way in business. Getting paid on time (and maintaining a solid CEI) requires building relationships with customers well in advance of the payment due date. Customers who value this partnership tend to pay more promptly and, if there are payment issues, communicate about potential delays before they arise.

Offer Early Payment Discounts

The earlier customers pay, the better your cash flow. Encourage quick payments by offering a small early payment discount. Even a one or two percent discount can motivate clients to act faster, helping you improve your collections effectiveness index score.

Try Invoice Factoring

If your team needs faster access to cash, accounts receivable financing can provide the liquidity needed to improve your CEI.

Invoice factoring is a common solution where business owners sell unpaid invoices to a factoring company and receive an immediate cash advance. In exchange for a small fee, the invoice factoring provider collects payment from the customer, so you can focus on growing your business instead of chasing clients for payment.

In-Summary: Collections Effectiveness Index in Accounting

Collections effectiveness index is a helpful metric that tells you how well your AR team converts outstanding invoices into cash. While simple aging reports can be useful, CEI helps you pinpoint inefficiencies in your business that cost you money.

A strong CEI reflects healthy cash flow, effective credit policies, and consistent follow-up. If your score is less than 100%, comparing your performance against the collections effectiveness index benchmark for your industry can give you a clear view of the next steps.

Better communication and proactive management make a difference, but if customers still pay late, it leaves your business in a difficult position. Consider invoice factoring in the meantime to cover expenses, salaries, and growth. This form of debt-free funding can not only improve your CEI, but it also keeps your business afloat with much-needed cash flow.

Michael McCareins

Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.