Recovery Rate

Recovery rate is the share of a delinquent, defaulted, or written-off balance that is ultimately collected, expressed as a percentage of the amount pursued. It appears at several altitudes: the recovery rate on accounts placed with a given agency (the core metric for comparing agencies, best measured as net-back, recoveries minus fees), the recovery rate on written-off accounts (which calibrates the allowance for doubtful accounts), and the expected recovery on an individual claim (which anchors settlement and sue-versus-release decisions).

The dominant driver of recovery is time. Commercial collectibility decays steeply with account age; industry studies consistently show that a claim placed at 3 months delinquent recovers at several times the rate of the same claim placed at 12 months, as debtor assets, documentation, and attention all erode. The other big drivers are documentation quality (a signed application, invoices, and PODs versus a story), whether security or guarantees exist, the debtor's continued operation (recoveries from operating businesses dwarf recoveries from closed ones), and balance size, since larger claims justify legal spend that small ones do not.

Used well, recovery data closes the credit department's feedback loop. Recovery rates by account age at placement justify (or indict) the escalation path's timing; recovery rates by agency direct placement flow; recovery rates by underwriting cohort reveal whether losses come from bad initial decisions or from slow escalation on good ones; and expected-recovery curves make settlement arithmetic honest. A department that knows its own recovery curve negotiates, reserves, and escalates with numbers where others use folklore.