City putting emphasis on collections
When it comes to shouting “Show me the money,” local governments have not always done so as loudly as the private sector.
While businesses know that collecting payment for services or products can mean the difference between profit and loss or even staying afloat, the public sector has rarely placed as strong an emphasis on collections. Instead, governments are faced with reducing services or increasing taxes.
But this approach is changing. With many local governments relying on revenue other than taxes, the importance of collecting revenue has received the attention it deserves. In St. Petersburg, Fla., for example, a consolidated collection program has helped lower the property tax rate in each of the past six years.
Among the steps that have contributed to the city’s success in collecting revenue are the following:
* Creating a mission. St. Petersburg began consolidating all collection functions by creating a collections division in 1984, with a mission of “prompt collection of monies due the city while maintaining the good will of the customer.” The division has grown to 49 employees responsible for collecting and processing more than $300 million a year;
* Setting collection goals. When the city’s program started, it took an average of 67 days to collect an invoice. Reducing this time to 30 days was one of the division’s first goals, which it has met. The division is also working toward collecting 90 percent of invoices in 45 days, collecting 95 percent of returned checks within 30 days and maintaining an average collection time for utility bills of 20 days or less;
* Asking for your money. It may seem obvious, but the best way to collect is simply to ask for payment, either by letter or telephone. The division informs customers of the amount owed, the date payment is expected and the consequences of not paying. (This could include turning accounts over to a collection agency, cutting off service or taking legal action.) It has collected $400,000 in past due invoices just by calling customers and requesting payment;
* Giving an incentive to pay. Establishing a late fee is the best incentive for prompt payment. Most customers will pay on time to avoid the fee; others either have financial hardships or are simply delinquent. For the former group, St. Petersburg sets up payment plans and adjusts billing dates for customers on fixed incomes who receive their checks after bills are due. Additional revenues in the form of late fees from customers who just do not pay on time enable the city to recover collection costs. When the division started charging a $3.00 fee, utility receivables were quickly reduced by $800,000; and
* Using outside help. Collection agencies provide help when your internal collection efforts are unsuccessful. Full service collection agencies receive a percentage of what they collect; if they do not collect, there is no cost to the client. St. Petersburg uses two outside agencies so it can compare the agencies’ effectiveness, and because some collection agencies do a better job with certain types of accounts. The city has also used a marine collection agency, as well as a service that sends collection letters for a set price-per-letter.
Because collecting money is not usually seen as a basic function of local government, most employees do not routinely develop the necessary skills. To help them understand their role, St. Petersburg now provides employees with a collection manual that describes a complicated subject in simple language.
An aggressive collection program may be unwelcome to a few, but the lowered or stabilized taxes that could result would likely be quite popular.