Understanding The Various Uses Of Capital Recovery

Posted on: 15 January 2015


It's not always easy to tell if returns from investments are greater than the cost of undertaking them. This is because investments take time, and reaping benefits from them takes an even longer period. Capital recovery is one of the more common sense approaches to measuring returns on investment. But the term is also used in collections.

Investment over Time

Investments aren't one-off actions. Although they also require a cash outlay, they're fundamentally different from expenses. Expenses are concrete, immediate transactions that don't extend over time. But, investments often are carefully planned and studied long before they're undertaken.

Once you decide to pursue an investment, you might need to commit to that investment for several years. This is often the case for larger investments. A small investment might seem more like a common expenditure; you might not need to track its return as carefully.

Returns on Investments

The idea behind investments is that they're worth the often-great financial outlay and effort. In other words, you invest because you believe you'll get a reward. But it's not always a straightforward proposition to see if you made the right choice to pursue an investment.

The cost of investments often commensurate with the time you'll need to commit to the investment. If an investment requires several years' commitment, it might be more costly than one that needs fewer years. So, you'll need to measure the returns on your investments, which isn't an easy task.

Capital Recovery and Investments

The term "capital" in capital recovery refers to the amount of investment that has taken place. This amount measures physical structures, equipment and machinery. It also contemplates the labor costs and services needed for the investment to take place.

The sum of these costs is your investment, and the time it takes to recover this amount is your capital recovery. For example, if it takes five years for an investment to generate a return equal to the amount invested, the capital recovery for this investment project is five years.

Capital Recovery and Collections

Sometimes, people use the phrase capital recovery when referring to liquidation of assets, such as equipment, structures and different production facilities. For example, you might sell these assets to recover your money when a project is unsuccessful and you need to repay creditors.

In the collection industry, capital recovery means debt recovery. It often refers to services rendered to go after delinquent debtors. For example capital recovery companies might collect collateral and resell it to satisfy a past due debt.

Talk with an accountant, like Teri J Henderson, CPA, P.A., today to get a clear understanding of the various uses of the phrase capital recovery.