Collection rates are quoted constantly and defined loosely. Here is one quarter on a multi-let building computed five ways, then the arrears provision that tells you what was really collected.
Divide the cash received against a period's demands by the amount billed for that period, on a stated day after the quarter date, with nothing removed from the denominator. On an illustrative multi-let building that billed 2,000,000 of rent and received 1,530,000 within 90 days, the rent collection rate is 76.5 per cent. Take an agreed deferral and a tenant in administration out of the denominator and the same quarter reports 92.7 per cent.
Worked in full in The Real Estate Asset Manager by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Collection is the first line of the monthly asset report and the one investors ask about first when occupiers are under strain. It is also the line with the most freedom in how it is built: which demands count (rent only, or service charge and insurance too), what day it is measured on, and what is quietly left out of the denominator. Each choice is defensible on its own. Together they can move the figure by more than fifteen points without a pound changing hands.
| Tenant | Rent billed | Service charge and insurance | Rent paid | Other paid | Status at day 90 |
|---|---|---|---|---|---|
| A | 600,000 | 135,000 | 600,000 | 135,000 | Paid by day 7 |
| B | 450,000 | 101,000 | 450,000 | 101,000 | Paid by day 30 |
| C | 300,000 | 68,000 | 300,000 | 68,000 | Paid by day 7 |
| D | 250,000 | 56,000 | 100,000 | 56,000 | 150,000 deferred by agreement |
| E | 200,000 | 45,000 | 80,000 | 0 | Part paid on day 60 |
| F | 200,000 | 45,000 | 0 | 0 | In administration |
| Total | 2,000,000 | 450,000 | 1,530,000 | 360,000 |
Total demands are 2,450,000: 2,000,000 of rent, 400,000 of service charge and 50,000 of insurance.
Step 1: fix the measurement day. Collection is a curve, not a point. On the strict rent definition this quarter shows 45.0 per cent at day 7, 72.5 at day 30 and 76.5 at day 90. A report that quotes the day-90 figure for the last quarter beside the day-7 figure for this one compares two different things.
Collection rateday d = cash received by day d against the period's demands ÷ demands billed for the period
Excel: =SUMIFS(Paid,PaidDay,"<="&d)/SUM(Billed)
Step 2: compute it on each definition in use. All at day 90.
| Definition | Numerator | Denominator | Rate |
|---|---|---|---|
| All demands, cash over billed | 1,890,000 | 2,450,000 | 77.1% |
| Rent only, cash over billed | 1,530,000 | 2,000,000 | 76.5% |
| Rent, deferral removed from the denominator | 1,530,000 | 1,850,000 | 82.7% |
| Rent, deferral counted as collected | 1,680,000 | 2,000,000 | 84.0% |
| Rent, deferral and insolvent tenant excluded | 1,530,000 | 1,650,000 | 92.7% |
The cash is the same in every row. The last definition reads 16.2 points higher than the strict one only because 350,000 of the hardest rent has left the calculation.
A collection rate measures timing. What the owner will finally receive depends on the arrears, and that needs a provision tenant by tenant.
| Tenant | Outstanding | Provision rate | Provision |
|---|---|---|---|
| D, agreed deferral | 150,000 | 10% | 15,000 |
| E, paying slowly | 165,000 | 50% | 82,500 |
| F, in administration | 245,000 | 100% | 245,000 |
| Total | 560,000 | 61.2% | 342,500 |
Of the 560,000 outstanding, 410,000 is arrears and 150,000 an agreed deferral that is not yet due. The provision of 342,500 is 14.0 per cent of the quarter's demands, and it implies the owner will ultimately receive 2,107,500 of the 2,450,000 billed: 86.0 per cent. That is the figure that belongs in a valuation or a forecast: above the strict day-90 rate, because some arrears will still arrive, but 6.7 points below the 92.7 per cent of the most flattering definition.
Service charge arrears matter as much as rent arrears. The landlord still pays the contractors, so the 45,000 of service charge and insurance that tenant F will never pay falls on the owner, in the same way as the irrecoverable service charge of a void unit.
| Outcome | Provision | Expected cash | Ultimate collection |
|---|---|---|---|
| E pays in full, administrator of F pays 30% | 186,500 | 2,263,500 | 92.4% |
| Base case | 342,500 | 2,107,500 | 86.0% |
| E fails, D defaults on the deferral | 560,000 | 1,890,000 | 77.1% |
The worst case returns exactly to the day-90 cash figure of 77.1 per cent, which is the honest floor: nothing outstanding is assumed to arrive. The best case lands close to the 92.7 per cent of the flattering definition, which is the point. Excluding the difficult tenants from the denominator is a forecast that they will not matter, presented as a measurement.
The book's monthly asset dashboard puts arrears by occupier on the same page as the leasing pipeline and the service charge budget; the free workbook for this case is the dashboard as a working file.
No. A deferral is rent not yet received under a new agreement, and it can still default. Counting the illustrative 150,000 deferral as collected lifts the rent collection rate from 76.5 to 84.0 per cent; removing it from the denominator gives 82.7. Report it separately, with its own provision, here 10 per cent or 15,000.
It depends on the definition and the day it is measured, so compare like with like. In the worked case the same quarter reads 45.0 per cent of rent at day 7, 72.5 at day 30 and 76.5 at day 90, and ultimately about 86.0 per cent of all demands after provisions. Track the day-30 and day-90 figures on one fixed definition over time.
Apply a provision rate to each tenant's arrears by status or age: 100 per cent for a tenant in administration, a partial rate for one paying slowly, a small one for an agreed deferral. Here 245,000 at 100 per cent, 165,000 at 50 and 150,000 at 10 give 342,500, 14.0 per cent of the quarter's 2,450,000 of demands, rent, service charge and insurance together.
This article is one calculation from The Real Estate Asset Manager. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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