The Collection Effectiveness Index (CEI) Calculator measures how efficiently a business collects receivables within a specific period. By providing insights into the effectiveness of credit and collections processes, this tool helps organizations identify potential bottlenecks, improve cash flow, and assess the performance of their accounts receivable team. It belongs to the category of financial performance tools, offering actionable data for maintaining healthy financial operations.
Formula of Collection Effectiveness Index Calculator
The Collection Effectiveness Index is calculated as:
CEI = [(Opening Receivables + Credit Sales – Closing Receivables) / (Opening Receivables + Credit Sales – Ending Current Receivables Past Due)] * 100
Where:
- Opening Receivables: Accounts receivable balance at the beginning of the period.
- Credit Sales: Total credit sales made during the period.
- Closing Receivables: Accounts receivable balance at the end of the period.
- Ending Current Receivables Past Due: Portion of closing receivables that are overdue.
The result is expressed as a percentage, with a CEI of 100% indicating optimal collection efficiency.
Pre-Calculated Table for Common Scenarios
Here’s a reference table for understanding CEI in various collection scenarios:
Opening Receivables | Credit Sales | Closing Receivables | Ending Current Receivables Past Due | CEI (%) | Efficiency Level |
---|---|---|---|---|---|
$50,000 | $200,000 | $40,000 | $10,000 | 96% | Excellent |
$30,000 | $150,000 | $50,000 | $20,000 | 86% | Good |
$100,000 | $300,000 | $120,000 | $50,000 | 75% | Moderate |
$80,000 | $250,000 | $150,000 | $100,000 | 62% | Needs Improvement |
This table provides a quick guide for evaluating CEI results and efficiency levels.
Example of Collection Effectiveness Index Calculator
Let’s calculate the CEI for a company with the following details:
- Opening Receivables: $80,000.
- Credit Sales: $250,000.
- Closing Receivables: $120,000.
- Ending Current Receivables Past Due: $50,000.
Step 1: Apply the CEI Formula
CEI = [(Opening Receivables + Credit Sales – Closing Receivables) / (Opening Receivables + Credit Sales – Ending Current Receivables Past Due)] * 100
Step 2: Substitute the Values
CEI = [($80,000 + $250,000 – $120,000) / ($80,000 + $250,000 – $50,000)] * 100
CEI = [$210,000 / $280,000] * 100 = 0.75 * 100 = 75%.
Interpretation
A CEI of 75% indicates moderate collection efficiency. While the company is collecting some of its receivables, improvements are needed to reduce overdue accounts and improve cash flow.
Most Common FAQs
A CEI of 90% or higher is generally considered good, as it indicates the company is effectively collecting receivables and minimizing overdue accounts.
CEI directly impacts a company’s cash flow. A higher CEI ensures timely collections, reducing reliance on external financing and improving financial stability.