Collection efficiency

Collection efficiency is the share of the amount due in a period that is collected. It can be calculated with or without arrears: the arrears-inclusive version adds amounts overdue from earlier periods to both the amount due and the amount collected. Prepayments can push the ratio above 100%, so lenders may report it with and without them.

Example

For illustration, if $10,000 in installments is due in a month and $8,000 is collected against those installments, collection efficiency excluding arrears is $8,000 ÷ $10,000 = 80%.

Calculating collection efficiency with arrears and prepayments

Illustration for one month: $12,000 in current installments is due, and $10,800 of those installments is collected. With $2,000 overdue from earlier periods and $1,000 collected toward that arrears, the arrears-inclusive result is ($10,800 + $1,000) ÷ ($12,000 + $2,000) = 84.3%. The result excluding arrears is 90%.

Prepayments can raise the result above 100%. For illustration, if $12,000 is due and collections include $600 paid ahead of schedule, the result including prepayments is $12,600 ÷ $12,000 = 105%. Lenders may report the measure with and without prepayments.

Reading collection efficiency against targets and other measures

Compare a month or segment with the target set for that same view. A result below the target is below it on the calculation basis used. Keep the treatment of arrears and prepayments consistent across comparisons, since changing what is counted changes the ratio.

Read the result alongside days past due and roll rates as a separate view of collections. Collection efficiency shows amounts collected against amounts due, but by itself it does not show how many accounts are past due or how accounts move between delinquency bands.

Questions we get asked

Decisimo’s collection efficiency calculator calculates the measure by month, with and without arrears, and shows which months fall below a target.