# 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.

Source: https://lopifi.com/learn/ar-aging-report-dso-cei/dso-and-cei
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do I calculate DSO and the collection effectiveness index?** 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](https://lopifi.com/md/glossary/dso) 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](https://lopifi.com/md/glossary/cei) 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**
- Pro: Shows exactly who owes what, how late
- Pro: Feeds the allowance
- Con: A list, not a trend
- Best for: Which customers to call this week

**DSO**
- Pro: One number, comparable to terms
- Pro: Easy to explain
- Con: Moves with sales growth and invoice timing
- Con: Two methods give two numbers
- Best for: The board pack and the cash forecast

**CEI**
- Pro: Ignores invoices not yet due
- Pro: Unmoved by sales growth
- Con: Needs the current bucket at both ends
- Best for: Judging the collections effort

Which number for which question.

## Where this page's rules come from

- [Wikipedia, “Days sales outstanding”](https://en.wikipedia.org/wiki/Days_sales_outstanding) — Days sales outstanding (reference)

## Read further

- https://lopifi.com/md/calculators/dso
- https://lopifi.com/md/calculators/collection-effectiveness-index
- https://lopifi.com/md/calculators/receivables-turnover
- https://lopifi.com/md/differences/dso-vs-dpo
- https://lopifi.com/md/startups/ar-aging-and-collections
- https://lopifi.com/md/docs/domain/10-metrics

- **Track:** [Accounts receivable](https://lopifi.com/md/learn/ar)
- **Part of:** [The AR aging report](https://lopifi.com/md/learn/ar-aging-report-dso-cei) — 6 min
- **Terms taught:** [DSO](https://lopifi.com/md/glossary/dso), [CEI](https://lopifi.com/md/glossary/cei), [Receivables turnover](https://lopifi.com/md/glossary/receivables-turnover)
- **Previous:** [The AR aging report](https://lopifi.com/md/learn/ar-aging-report-dso-cei)
- **Next:** [Bad debt: the allowance, the write-off and the tax return, AR · Lesson 8](https://lopifi.com/md/learn/bad-debt-allowance-vs-direct-write-off)
- **The course:** https://lopifi.com/md/learn