Best Practices in Revenue Collections
Chad Wilson
Senior Director of Operations
Contingency Services, Pioneer
Is There A Silver Bullet for Collections?
Question: Which state or municipality is the
best at collecting tax, non-tax, and other
revenues?
Answer: No one does it
perfectly; they all use
various methods to collect
debt, with some entities
achieving greater results
than others.
Why Pioneer?
Why Implement Best Practices?
Best Practices Drive…
• A greater “Netback”
• Higher levels of recoveries
• More efficient use of constrained resources
• Improved ability to fund critical government
programs
Why Pioneer?
Collection Issues Affecting Governments
Problems and Barriers
• Most government entities have a
decentralized process
• Commodore 64s in an iPhone era
• Entity-wide system integration is needed
• Outstanding receivables not worked in a
uniform manner
Problems and Barriers
• Insufficient reporting capabilities and lack of
measurement metrics
– Do you know what those tasked with collecting for
you are actually collecting?
– When are updates sent to you?
– Do you measure liquidation by debt type?
• Identification of known and unknown filers?
– Can you determine who they are and where they live?
Why Pioneer?
So, What Are Best Practices?
Collections Best Practices
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Promote strategic collections partnerships across all levels of government
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Town/city/county/state
• Advocate for the passage of enhanced collections legislation from the
General Assembly
– For example, House Bill H 1425 from the 2011 Session, allows “the treasurer in
any county, city, or town, with the approval of the local governing body, may
employ, upon such terms as may be agreed upon, the services of private
collection agents to assist with the collection of any local taxes which remain
delinquent for a period of three months or more and for which the appropriate
statute of limitations has not yet run.”
• If allowed by law, add collection fees to support increased compliance
and/or collection activity
Collections Best Practices
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In order to maximize collections, legislation should be enacted to permit
collections departments to do the following:
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Levy bank accounts to recover funds
Create the legal framework allowing for administrative wage garnishment
Access city and county databases that contain demographic information, which will
assist departments or partner collection agencies in locating and contacting debtors
If applicable, utilize the federal match program for “discovery” efforts involving
taxpayers who are non-compliant
Proceed with litigation and judgment on accounts that meet specified criteria
Institute sigma segmentation and a scoring strategy
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Knowing detailed characteristics, such as types of debt and ages of the debt, will allow
a city, state or third party vendor to prioritize the workflow, which will increase the
efficacy of collections efforts and performance
For example, if a government knows that 50% of the debt in their book is more than
10-years-old, the entity can then concentrate its efforts on collecting debt that is
“newer” and statistically much more likely to be collected
Collections Best Practices
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Begin internal collections efforts as early as possible in the
debt life cycle
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It is a well known fact in the collections industry that the “newer” the
debt, the more likely it is that it will be collected
Question: What are the processes you have in place that delay debtor
contact?
If a city, county or state decides to contract with a collection
partner, it is key to place accounts as early as possible
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Ideally, accounts would be given to a partner after 60-90 days of
being worked by the municipality. Outsourcing these collections
efforts has the added benefit of allowing a department or agency to
focus on more complex cases or on other vital department objectives
Additionally, a city, county or state should allow at least nine months
for a partner to work the accounts
Collections Best Practices
•
A contingency fee collections contract is the ideal model to
employ because there is shared success and the alignment
of goals.
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This contract allows for limited up-front costs to the city, county or state and allows
collection partners to align their pricing with the interests of the city or state. It is a
win-win for both parties when additional revenue is collected
It is often best not to rely on “lowest cost” or “lowest bid”
vendors.
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The cheapest vendors will expend minimal effort collecting on a state’s book of receivables in
order to keep costs low
This translates into fewer collection tools/efforts employed, fewer account resolutions, lower
revenue coming into the department or agency, and an increased potential for compliance or
other service risks
During a 2005 panel discussion, Gary Hopkins, Director of the Collections Group of the Office of
Federal Student Aid in the U.S. Department of Education stated that “…government agencies [are]
going away from the low bidder”
Collections Best Practices
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Cities, counties and states are best served by making outbound calling a
part of an overall collections strategy
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Many departments, agencies and low-priced vendors simply take inbound
calls from taxpayers who owe debt, a “sit-back-and-wait” approach
However, leading-edge third party vendors employ an outbound call strategy
to dramatically increase how much revenue they can collect by making
proactive contacts with the debtor and using multiple resources to find
updated demographic information
A taxpayer called by a city or state’s revenue department or by a third party
vendor is more likely to pay the debt owed than one who is not ever called
Assess a reasonable penalty to collect on a past-due obligation
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This “stick” serves as a built-in way to improve voluntary compliance as
future tax delinquencies will cost repeat offenders more down the road
Collections Best Practices
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Payment plans allow debtors to spread their payment over several
months instead of forcing them to come up with a single payment
that is beyond their means
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For example, a debtor is often more likely to pay if they are allowed
to remit $100-a-month for twelve months instead of having to pay
$1,200 by a specific date
This lump-sum approach can increase the likelihood of NSF
payments
Often, the additional costs associated with a payment plan are offset
by a small convenience fee assessed on the taxpayer’s account
Allowing online payments and payments by phone is convenient
for the taxpayer, thus increasing the chance a payment will
be made
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In person payments are high cost, with low netback. While they may
be necessary, you are losing money with in-person payment centers
Collections Best Practices
•
If you decide to contract with one vendor, or with
multiple vendors, performance measures should be put
in place so metrics can be tracked to see how successful
or not a vendor may be
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If a single vendor is performing poorly, that performance will
appear in the data collected and, if necessary, a new vendor
can be found before too much revenue is lost
Under a multiple collector model, such as the one employed
by the U.S. Department of the Treasury/FMS, competition
creates the incentive to maximize revenue production because
the top vendors receive more accounts to work and a
monetary award, thus rewarding success, which is beneficial to
all parties involved
Why Pioneer?
New and Innovative Best Practices
New and Innovative Best Practices
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At the state level, tie the ability to renew driver’s license to tax compliance.
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At the city or county level, governments in Virginia already can tie motor vehicle
registration to personal property tax compliance.
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Massachusetts 1996
Rhode Island 2005
Tennessee 2010
Additional tax compliance tools possibly available to governments:
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Denial of building permits or business licenses and renewals
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Wage garnishment
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Liens against checking and savings accounts
States enter into agreements with federal departments and agencies to
exchange information regarding outstanding debt liabilities so that state- or
federally-owed debt can be collected through the offset of federal or state tax
returns or through the administrative garnishment of wages.
New and Innovative Best Practices
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The creation of a centralized collections department or agency
tasked with collecting debt government-wide
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For example, the federal government faced this issue and corrected
it in 1996 with the “The Debt Collection Improvement Act.” This
created the Financial Management Service (FMS), within the U. S.
Department of the Treasury, to serve as the federal government’s inhouse collections agency
FMS, using third party vendors, collects on all debt types for most
departments and agencies of the federal government
This FMS “model” is making its way to the state and municipal level,
as governments begin to recognize the value of creating a singular
entity with the sole purpose of debt collection
New and Innovative Best Practices
• Institute a public information campaign alerting
taxpayers that collections will be a high priority
– If you are already mailing regular notices or
letters, add a text box with this information to the
already scheduled mailing
• Invest in leading-edge collections software
– This will streamline collections and increase
revenue
Why Pioneer?
Questions?