The formula is simple: divide total collections operating cost by total dollars recovered. Spend $10,000 in AR staff time and agency fees to recover $80,000 in overdue invoices and your cost per dollar collected is $0.125, or 12.5 cents per dollar. Lower is better. External collection agencies typically charge 25-50% contingency, meaning they cost 25-50 cents per dollar collected before netting out. Internal staff cost depends on salary and how efficiently they work.

Cost per dollar collected determines whether a collection method is economically rational. A method that costs 40 cents per dollar collected on a $500 invoice only breaks even if recovery rates are very high, because the max net recovery is 60 cents on the dollar. For small invoices, the math usually favors automated methods (email, AI voice calls) over manual staff calls or legal action. AI voice tools like Syntharra are designed to drive this cost well below 10 cents per dollar recovered.

Most businesses don't calculate this metric explicitly, so they don't know whether their collections process is profitable. If your AR staff spends 20 hours a week on follow-up and recovers $30,000 a month, the economics depend heavily on their loaded cost. Tracking it monthly, even roughly, helps you identify which collection methods produce the best return and where to invest in automation.