The Case For Centralizing Collections in Government
Blog: Enterprise Decision Management Blog
Most tax and revenue agencies have strong collection operations, anchored by a large, dedicated staff of collectors supported by laws that allow for streamlined enforcement actions. Outside of tax agencies you often find departments with significant receivables, but without the mission, authority, or focus on collecting these receivables. Centralizing collections in government is therefore a significant opportunity when we focus on the area of non-tax receivables.
In fact, government agencies can increase revenue by tens or even hundreds of millions of dollars each year through centralized collection activities. These new efficiencies also deliver on the challenges that State and municipal governments face to do more with less and to improve the customer experience without increased taxes or additional fees.
So Why Centralize?
There are many reasons to centralize collection operations:
- Economies of Scale. Typically, only the tax agency has sufficient debt to get the economies of scale needed to optimize collection operations. Individual agencies often can’t afford automated collection systems, data gathering solutions, or sufficient collectors to efficiently recover outstanding liabilities.
- Enhanced Customer Service. A centralized operation can invest in tools that enhance the experience for individuals and businesses with delinquent debt. These tools offer the ability to pay or enter into a payment arrangement on-line, consolidating debt from multiple agencies to present a consolidated bill, or finding address and phone number data in an automated fashion.
- Focus. Outside of the tax agency, most departments exist to distribute services, not collect delinquent debt. Agency heads are rightly focused on their core mission of delivering services, so collection activities are often a low priority. There’s generally little to no investment. A centralized collection function can focus on this effort, without interfering with other parts of the organization.
- Consistency. When individual agencies perform their own collections, there is almost by definition a lack of consistency. A person or business could owe $100 to four different agencies, and be subject to four different collection treatments, four different appeal rights, and could be receiving multiple phone calls in a given day.
- Additional Revenue. Finally, and possibly most importantly, a centralized collection environment can bring in tens if not hundreds of millions of dollars in additional revenues each year. These operations can improve delinquent collections by 10-45% depending on the processes in place.
Examples of Successful Collection Operations
Many states successfully utilize a centralized collection operation.
These States have seen increased collections from non-tax receivables, along with a consistently fair process that brings in much needed revenues to pay for critical state functions.
Centralizing Collections in Government – Statutory Authorities
One important consideration for centralized collections is having the proper statutory authorities in place. Below is a list of key items to support this function:
- Single Legal Framework. One of the impediments to collections in a non-centralized environment is having different statutes governing the collection of individual debt types. The most efficient operation provides for all debt to be collected under a single statutory framework.
- Debt Recovery Fee. Centralized collection operations work best when they can add a cost recovery fee on top of the original liability. Under this approach delinquent debtors fund the collection efforts, and agencies get 100 percent of the original liability when collected.
- Sharing of Data Between Agencies. Most centralized collection operations have the authority to exchange data about the debtor, which is helpful in collecting debt.
- Timely Referral. It’s helpful if there is a requirement to refer delinquent debt between 60 or 90 days past the due date to assure the central operation gets fresh debt while still collectible.
- Bank Levies and Wage Garnishments. Most states give their tax authority the right to issue bank levies and wage garnishments without going to court for a judgment. The centralized collections function is greatly enhanced when they have this same authority.
- License Withholding. This includes business, occupational, hunting, fishing, and driver’s licenses. Many of the centralized collection operations can request all state license renewals are withheld until the debtor resolves their obligation.
- Support for Other Government Entities. A number of states are able to offer their services to local counties and cities and public higher education institutions. Since the central function is paid through collection fees, this service comes at no cost to the state and can provide significant value to municipal governments that don’t have the economies of scale to create their own robust collections function.
Robust Collection System to Power the Operation
In order for centralization to be successful, it needs a technology platform that can provide a wide range of capabilities:
- Sophisticated Workflow Engine. A strong collection system can route cases to the best work queue based on the most current information.
- Consolidation of Debts into Cases. In order to collect in the most efficient manner, based on the totality of the liabilities owed, the system should consolidate debts from multiple agencies into unified cases.
- Predictive Analytics. Predictive analytics allows for more efficient collection activities by automatically separating debtors who can pay from those who can’t (or won’t). This helps maximize both efficiency and fairness.
- 24/7 Self-Service. Technology is available to let debtors resolve their own cases on-line. This reduces the burden on both the debtor and the agency.
- System of Record Capability. Typically the centralized agency needs to become the system of record for the debt. This allows for consolidated billing and payments.
- Agency Portal. An agency portal allows a referring agency to go on-line to review both the status of individual debts and overall collection reports.
- Automated Offsets. A wide range of offsets should be available and utilized in an automated fashion, including Federal Tax, State Tax, Vendor, and Lottery Offsets.
Through these processes, statutes and tools, government agencies have demonstrated they can achieve significant increases in revenue, generating millions of dollars each year to fund critical, state-supported programs.
To learn more, read FICO® Government Solutions Modernize Collections, email us at info@fico.com or call 1 888 342 6336.
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