In one line
A score, as a percentage, of how much of the money available to collect in a period you actually collected.
What it means in practice
CEI is opening receivables plus credit sales minus closing receivables, divided by opening receivables plus credit sales minus the part of the closing balance not yet due, times 100.
The point of the second half is fairness. Money still inside its terms was never available to collect, so it is taken out. That is what separates CEI from DSO, which is pushed around by how much you happened to sell.
Above 80% is generally treated as healthy and above 90% as strong, and the benchmark travels between industries better than DSO does.
Example. Opening $52,000, credit sales $140,000, closing $44,000 of which $31,000 is not yet due. That is $148,000 collected of $161,000 available, or 91.9%.
The mistake to avoid
Reading CEI on its own. It scores a period; it will not show you the one very old debt that will never be paid. Read it next to the aging.
Work it out
Why the benchmark travels
Most receivables measures cannot be compared between businesses, because a company selling on net seven will always look better than one selling on net sixty whatever either of them does. CEI is already normalised for how much there was to collect, which is why the 80% line means roughly the same thing in most industries.
A second example
Opening $20,000, credit sales $60,000, closing $18,000 of which $14,000 is not yet due. That is $62,000 collected of $66,000 available, or 93.9%. A very strong quarter, even though the closing balance is barely lower than the opening one.
Related terms
- Aging bucketOne of the age bands an unpaid invoice falls into: current, 1 to 30, 31 to 60, 61 to 90, or over 90 days past due.
- Days past dueHow many days have passed since an invoice's due date, not since it was raised.