Recovery Rate
Recovery rate measures the percentage of charged-off MCA principal eventually collected through workout agreements, judgments, or third-party collection — partially offsetting credit losses and improving net portfolio yield.
Why This Matters
Recovery rate calculation: dollars recovered / dollars charged off, typically measured at 12, 24, and 36 months post-charge-off. MCA recovery rates vary widely by funder: top-tier collections operations achieve 20-35% recovery; weak operations achieve 5-15%. Recovery sources include workout agreements (renegotiated payment plans), confession-of-judgment execution, asset seizure, third-party collection agency placement, and personal guarantee enforcement. Strong recovery operations meaningfully improve net portfolio economics.
Frequently Asked Questions
Frequently Asked Questions
What drives MCA recovery rate variation?
Collections infrastructure quality, COJ enforcement aggressiveness, personal guarantee enforcement willingness, third-party agency relationships, and merchant cooperation incentive design. Best-in-class operations invest heavily in collections technology and staff.
Are MCA recovery rates improving or declining?
Recent regulatory pressure on COJ enforcement (especially NY's restriction) and aggressive collection tactics has compressed recovery rates for funders relying on those mechanisms. Funders investing in workout agreement programs are seeing recovery rate stability.