Pulling in the money
Local governments have more than $40 billion in outstanding receivables, according to the Washington-based National Association of Counties. Typically, they include court fines, child support payments, parking and traffic fines, ambulance and emergency medical service fees, hospital charges, and water and sewer service fees. Although collecting outstanding debts can be difficult for local governments that focus primarily on providing services to their communities, some simple steps can dramatically increase the collection rate.
- Centralize collection efforts
Merging all outstanding receivables into one department is probably the single most important change local governments can make to improve their collection rates. When collection is left to individual departments, success rates typically widely vary within the same city or county. Some departments monitor the debt very actively while others do not, and decentralized collection efforts frequently become duplicative, because residents often owe money to multiple departments.
Cities and counties, however, can maximize staff time by dedicating collectors who are trained specifically to motivate debtors to pay. Forming consolidated collection teams also may ensure that all debts receive equal attention.
- Prevent stagnant receivables
Delinquent accounts always should be monitored. According to the U.S. Department of Commerce, $1 owed presently will be worth only 45 cents in one year and only 23 cents in two years. The longer a debt remains unpaid, the greater the likelihood that it never will be recovered. Constantly monitoring receivables and preventing them from becoming “stale” is critical to collecting money owed.
- Know when to outsource
Even the most effective local government collection efforts will reach a point where they are unable to collect on some accounts. Cities and counties should know where that threshold is within their agencies and have a policy to outsource those accounts immediately. For example, if collection rates begin to drop after 90 days, local governments can send those accounts to a private-sector collection firm. Successful collection firms can locate debtors anywhere in the country, and have highly trained collectors on staff and sophisticated software that will greatly increase the likelihood of recovering monies owed. The sooner local governments relinquish hard-to-collect debts to a qualified collection company, the more money will be recovered.
- Choose a qualified collection firm
Many public sector collection firms are paid a percentage of funds collected. Some states allow governments to charge an “add-on” fee to the original debt amount. So, the debtor pays the fee to the collection firm, taking the service cost away from the government agency. Choosing a firm that focuses on the local government market rather than consumer debt ensures that the company will understand the unique circumstances of public sector collections. The company should operate under the requirements and guidelines of the federal Fair Debt Collection Practices Act, which regulates collection efforts. In addition, local governments should choose a firm that lets them approve all letters and phone scripts so that the tone of all communications is consistent with the standards of individual agencies.
The author is director of program management & marketing for the Washington-based National Association of Counties Financial Services Center.