DSO and CEI, worked
DSO and CEI worked on Northwind's fourth quarter: the formula, the inputs off the aging, and which number answers which question.
DSO: one number for the trend
Days sales outstanding is receivables divided by credit sales for a period, times the days in it. Over the fourth quarter Northwind invoiced $48,400 on credit across 92 days and closed with $22,900 owed: a DSO of about 44 days. September's, on one invoice, was about 11. Against Net 30 terms, that's customers paying about 14 days late on average. Watch the trend more than any one month.
CEI: what was collected of what could be
The collection effectiveness index scores collections against what was actually due. Northwind opened the quarter with $8,000 owed, invoiced $48,400, and closed with $22,900, of which $9,000 wasn't due yet. It collected $33,500 of a collectible $47,400: a CEI of 71%. "Collected" here includes the credit note and the discount, not just the $33,060 of cash, because both cleared receivables too.
Aging
- Good at
- Shows exactly who owes what, how late
- Feeds the allowance
- Watch for
A list, not a trend
- Best for
- Which customers to call this week
DSO
- Good at
- One number, comparable to terms
- Easy to explain
- Watch for
- Moves with sales growth and invoice timing
- Two methods give two numbers
- Best for
- The board pack and the cash forecast
CEI
- Good at
- Ignores invoices not yet due
- Unmoved by sales growth
- Watch for
Needs the current bucket at both ends
- Best for
- Judging the collections effort
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Background reading — not an authority
- Wikipedia, “Days sales outstanding” (opens in a new tab)Days sales outstandingFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- DSODSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period.Convention
- CEICEI is a liquidity and working-capital metric, calculated as (Opening AR + Credit sales − Closing total AR) ÷ (Opening AR + Credit sales − Closing current AR).Convention
- Receivables turnoverReceivables turnover is a liquidity and working-capital metric, calculated as Credit sales ÷ Average AR.Convention
See also
- Metric definitionsEvery metric in this system ships with its formula, period, inputs and source. A KPI without a definition is a number people argue about in meetings.
- DSO calculatorDSO is a liquidity and working-capital metric, calculated as (Ending AR ÷ Credit sales for the period) × Days in the period.
- Collection effectiveness index calculatorCEI is a liquidity and working-capital metric, calculated as (Opening AR + Credit sales − Closing total AR) ÷ (Opening AR + Credit sales − Closing current AR).
- Receivables turnover calculatorReceivables turnover is a liquidity and working-capital metric, calculated as Credit sales ÷ Average AR.
- DSO vs DPODSO counts the days of sales customers haven't paid for yet. DPO counts the days of purchases the company hasn't paid for. With inventory days, they make up the cash conversion cycle.
- AR aging and collections: a practical guide for startupsHow to read an AR aging, work out DSO, run a dunning cadence, record a promise to pay, escalate a late account and clear unapplied cash.