What is collection efficiency?
Collections as a percentage of what was due.
Usually collections in a month over the demand raised for that month. Definitions vary — whether arrears collected are counted, whether prepayments are, whether foreclosures are — so the figure is only comparable when the definition travels with it.
How is collection efficiency calculated?
Current-month collection over current-month demand gives the narrow figure. Including brought-forward arrears in the denominator gives a lower and usually more honest one, and the two can differ by twenty points on a stressed book.
Collection efficiency: a worked example
Demand ₹1 crore, collections ₹98 lakh, and opening arrears of ₹30 lakh of which ₹10 lakh was recovered. On current-month demand alone the answer is 98%. Against demand plus opening arrears it is 83%. Both are defensible; only one of them is the answer to the question being asked.
Why does collection efficiency matter?
A collection efficiency figure that silently omits brought-forward arrears flatters the portfolio, and it is quoted more often than any other number in lending.
What a lending system has to do about collection efficiency
Specified and partially gated: current-month demand and collection are both flows and derivable today, but the opening and closing arrears carry-forward needs the daily position snapshot. It is not shipped unlabelled, precisely because the unlabelled version is the flattering one.
Related terms
- DCB (demand, collection, balance) — What was due, what came in, what is left.
- Overdue — An amount the lender demanded and the borrower did not pay.
- DPD (days past due) — How many days an instalment has been overdue.
- Static pool analysis — How one cohort of loans performed over time.
From the people who wrote this
Run your lending on Lenviq
The section above describes what a lending system has to do about this term. Lenviq does it — on every account, computed at day-end, with the direction it comes from recorded against it.
Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.