The collection rate is the main indicator of the efficiency of the processing of unpaid bills . It is often studied in parallel with the activation rate (or file movement rate). The recovery rate can serve as a basis for a success objective, either internal to the company, or contractual between the company and its debt collection service provider.
Collection Rate
It is also very common for this rate to represent the main target base for the company or its service provider companies . Monitoring compliance with the objective can be carried out month by month, or according to a cumulative calculation over the year. We then set an annual objective that we can cut out over the 12 months of the year.The collection rate corresponds to the ratio between the amount of sums collected and the total amount of outstanding payments .
At the level of a file, the recovery rate is relatively insignificant because it is very dependent on subjective elements such as the solvency of a debtor or a dispute. On the other hand, on the scale of a portfolio and even from 10 files, it will make it possible to give a trend.
Recovery Rate Analysis
A low recovery rateA low recovery rate of Medical billing services USA can be caused by several factors, which can be corrected by implementing specific actions, particularly at the level of the company's sales department: Receivables that are too oldHigh complaint rate
Insufficient contractual framework
Lack of reliable contact details (incorrect addresses, absence of telephone or email contact details)
The source of a low rate can also be explained by a failure or inefficiency of the services in charge of collection or by a lack in the level of quality of the strategy implemented.
Recovery rate analysis time
The recovery rate must be observed over a sufficient period of time: it is useless to measure it over a cycle of less than one month .
Depending on the recovery method you have chosen, and the time you will devote to it, observing the recovery rate will also allow you to decide when to end your recovery, i.e. from when it ceases to be profitable and even productive.
It is therefore observed that amicable collection is really effective over the first two months of the collection cycle (up to 85% success depending on the receivables) and that this efficiency drops significantly from the 3rd month and then stabilizes. This is explained by the fact that beyond two months, the only collections generally recorded correspond to payment schedules granted over a longer term.
Delinquencies and delays are not uncommon. Evaluating them well is essential to effectively manage your cash flow and ensure the good health of your business. For this, the recovery rate is an essential tool to master. Here's everything you need to know about it.
What Is The Recovery Rate?The collection rate of Medical billing services USA is a ratio that measures the quantity, in nominal value, of receivables that your company manages to collect. Conversely, it allows you to deduct the amount of your debts that you are unable to get paid.
When the collection rate is 100%, it means that you manage to obtain full payment of your invoice . Conversely, a rate of 0% means the inability to recover all of your debt.
Collection rates can vary considerably depending on different factors (macro-economic conditions, types of customers, types of receivables, debtors abroad, etc.).
Good to know: we also talk about recovery rate.
How To Calculate The Recovery Rate?Collection Rate = (total payment amount / total amount of the invoice or your customer credit) x 100
Example: your invoice is 10,000 euros and your customer pays you 8,000 euros.
Your recovery rate is (8,000 / 10,000) x 100 = 80%.
Recovery rate: improve the management of your customer risk
Estimate your lossesThe collection rate allows you to estimate the loss in the event of default by your customer.
Example: with a recovery rate of 30%, your loss is estimated at 70%.
Define your terms for future transactions
Understanding the recovery rate can help a business set terms for future transactions. It therefore makes it possible to reduce the risk of initiating a recovery .
Specifically, if your collection rate with respect to your customer is 70%, you can request a cash payment from that customer. You will probably avoid giving him credit. Similarly, a collection rate of 10% should encourage you to sever commercial relations with this customer.