Recoveries management is the stage of the credit cycle that deals with accounts in default. Earlier collections activity tries to bring a late borrower back up to date; recoveries begins when the relationship has broken down, the loan has typically been terminated or charged off, and the aim is to limit the final loss. It is usually run by a specialist unit separate from lending.
The tools include negotiated settlements and payment plans, enforcing security by repossessing and selling collateral, claiming on guarantees, court action and insolvency proceedings, placing accounts with collection agencies, and selling portfolios of defaulted debt to specialist buyers. Amounts recovered after a charge-off are credited back to the loss account. Recovery rates and timing determine loss given default, a key input to provisions and capital. Conduct rules govern the treatment of borrowers, especially individuals in financial difficulty. The function works to the bank's write-off policy.