What is the collection effectiveness index?

The collection effectiveness index (CEI) measures the effectiveness of collection efforts over a period and is calculated as the percentage of collectible receivables that were actually collected. For professional service firms, CEI provides a more nuanced view than the simple collection rate by accounting for current period billings and beginning receivables to show true collection performance.

Key characteristics

• Measures the percentage of collectible AR actually collected

• More nuanced than a simple collection rate

• Accounts for billing and timing factors

• A higher percentage indicates better collection

• Should be tracked monthly

• Target: above 80% consistently

Why it matters for professional service firms

Simple collection metrics can be misleading. CEI reveals how effective collection efforts actually are by measuring what was collected against what was collectible. A firm collecting $400K when $450K was collectible has 89% CEI, indicating strong performance. Professional service firms should track CEI monthly and investigate declines that indicate issues with the collection process or changing client payment behavior.

Real-world example

Michelle's firm tracked DSO but wanted deeper insight into collection performance. CEI calculation: beginning AR $180K plus current period billings $420K equals $600K total collectible, minus ending current AR $165K equals $435K that should have been collected. Actually collected: $395K. CEI: 91% (strong performance). Comparison with the prior period (CEI 84%) showed improvement due to changes in the collection process. Monthly CEI tracking enabled measurement of the effectiveness of the collection initiative and early warning when performance declined.