Many governments attempt some type of collection on their own, even if they don’t have an organized collection department. It’s often more cost-effective to handle simple collections in-house but even basic efforts can put a drain on your time, money and staff. The situation often leads us to question what, if any, assistance a collection agency could provide.
One of the easiest considerations is whether or not your organization already has a collection department. If no collection department has been established, outsourcing may be an easy decision for your government. Where a collection department exists, you should look at staff vs. workload but also the average age of your debts. The law of diminishing returns says that at some point, the recovery isn’t worth the effort. As accounts get older and become stale, they are harder to collect and therefore the recovery is smaller. For instance an account that is 30 days past due has about a 97% recovery rate whereas a year old account has a recovery rate of 45%.
Thought should be given to the types of debt you are owed. Many governments that provide utility services have what could be called “revolving debt.” This means the customer has a rolling balance as opposed to a fixed amount due. Revolving debts may be difficult to outsource if your government is required to continue providing a particular service for health or sanitary reasons.
As you’re reviewing the types of debt your government is owed, you may find there are specialized types of debt that could be best handled by an agency. Library accounts are a good example. They are often small dollar amounts that don’t warrant a lot of staff time, but there are collection agencies that specialize in library debt.
Some debts can also be collected at no-cost to the government. Many states are enacting legislation that allows collection agencies to add their fees to the cost of a court fine. This enables governments to outsource their court debts to an agency at no cost. They agency simply collects their fee from the debtor along with the fine, which is remitted back to the government at 100%. Depending on the attitude of your government, you may not see that as good government. Some governments view this as adding additional hardship on the debtor. It all depends on how your specific government views debtors, debt and OCA’s.