Recovery rates are quoted very differently depending on whom you’re talking to. Simply put, a recovery rate is the amount of past due debt you have for a given time divided by the amount returned to you in a given amount of time. Frequently, rates are overstated when bankruptcies or receivables have been removed from the debt. Ask exactly what data is included when you are discussing collection recovery rates.
Here’s the formula:
Total amount of debt received (by debt recovery firm) in a given period divided by total dollars returned over a certain period of time. We generally like to evaluate the amount of debt placed in a one-month period and divide that number by the dollars returned over one year or increments over several years.
The amount of time it takes to recover the debt is an important piece of data that is often overlooked when calculating rates. What you can expect during the first year is different from what you can expect over the next several years. We do not recommend deleting bankruptcies or any other items from the calculation. This way, you get a more accurate picture of what your return is.
When you are comparing recovery rates between different collection agencies, always ask if any items have been deleted or pulled from the debt in order to calculate their recovery rate.
For more information, call us at (208) 463-2324, toll-free at (888) 432-2432, or send an email to firstname.lastname@example.org.