Recovery Rate Calculation

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Recovery Rate Calculator

Calculation Results

Gross Recovery Rate:

Net Recovery Rate:

Net Recovery Amount:

Understanding Recovery Rate Calculations

In finance and debt collection, the Recovery Rate is a critical metric used to determine the efficiency of recovering funds from defaulted loans, accounts receivable, or written-off debt. It represents the percentage of the total outstanding debt that is successfully collected after a default occurs.

The Recovery Rate Formula

The basic formula for calculating the recovery rate is:

Recovery Rate (%) = (Total Amount Recovered / Total Amount Owed) × 100

Gross vs. Net Recovery Rate

While the gross recovery rate shows the raw percentage of funds retrieved, the Net Recovery Rate is often more valuable for businesses. This metric accounts for the costs associated with the recovery process, such as legal fees, collection agency commissions, and administrative overhead.

  • Gross Recovery: The total cash collected from the debtor.
  • Net Recovery: The total cash collected minus all expenses incurred during the collection process.

Real-World Example

Suppose a company has a defaulted account with an outstanding balance of 10,000. After hiring a collection agency, they manage to recover 6,000. The agency charges a fee of 1,200 for their services.

  • Gross Recovery Rate: (6,000 / 10,000) × 100 = 60%
  • Net Recovery Amount: 6,000 – 1,200 = 4,800
  • Net Recovery Rate: (4,800 / 10,000) × 100 = 48%

Why Recovery Rates Matter

Lenders and investors use recovery rates to estimate the Loss Given Default (LGD). If a bank knows its historical recovery rate on personal loans is 40%, they can assume their LGD is 60%. This helps in setting interest rates and determining the level of capital reserves required to cover potential losses.

function calculateRecoveryRate() { var totalOwed = parseFloat(document.getElementById('totalOwed').value); var totalRecovered = parseFloat(document.getElementById('totalRecovered').value); var recoveryCosts = parseFloat(document.getElementById('recoveryCosts').value) || 0; var resultsBox = document.getElementById('recovery-results-box'); if (isNaN(totalOwed) || isNaN(totalRecovered) || totalOwed <= 0) { alert("Please enter valid positive numbers for the outstanding amount and recovered amount."); return; } // Calculation Logic var grossRate = (totalRecovered / totalOwed) * 100; var netAmount = totalRecovered – recoveryCosts; var netRate = (netAmount / totalOwed) * 100; // Update UI document.getElementById('grossRateDisplay').innerText = grossRate.toFixed(2) + "%"; document.getElementById('netRateDisplay').innerText = netRate.toFixed(2) + "%"; document.getElementById('netAmountDisplay').innerText = netAmount.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }); resultsBox.style.display = "block"; resultsBox.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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