A return to ‘traditional’ collections

Over the last few years, there has been a great deal of talk, deservedly so, about the rise and continued rise of new collection techniques, strategies and disciplines, and their impact on the credit management sector. There is always the risk, however, that in focusing our attentions on such areas as debt sale and purchase, for example, that we lose sight of the fundamentals, and in particular the essential role that ‘traditional’ debt collection plays in the recovery of debt within the public sector.
    
Helping to manage the debt burden
Government itself is one of the best examples of how traditional debt collection can help manage its debt burden. The use of external collection agencies within certain government departments have been so successful that they are fast becoming an integral part of credit management strategy. And with government having a clear duty as the keeper of the public purse, it is perhaps even more important for them to demonstrate that as much outstanding debt is being recovered as possible.
    
The Lewis Group works with national government agencies and local authorities in a ‘traditional’ debt collection capacity, primarily working as an extension of those agencies’ own in-house teams. The type of debt being recovered can vary significantly: at one level it might be a statutory fine or an overpaid benefit payment; or it might be – in the case of a local authority – a sundry debt or unpaid council tax or non-domestic rates.
    
In keeping with the commercial sector, government agencies tend to deploy their own credit management procedures in the first instance. Once they have identified a payment or return is overdue, the defaulter is contacted by telephone and letter for recovery either by themselves, if they have the resource, or by the instructed external collection agency.
    
Historically, if their own collection efforts went unrewarded, the public sector had nowhere else to go. The debt would have been deemed unrecoverable and deemed written off or held as part of its debt stock. Clearly government had a responsibility to recover as much overpaid public money as possible, and it was for this reason that it began looking at the private sector, to see how they could help.
    
What these government departments now find is that if they mail one of their defaulters and suggest that if they do not respond then the matter will be passed to an outside agency, they often get a response. There is something about it being taken away from a public sector organisation and into the private sector that makes it more ‘serious’ in the customer’s eyes.
    
Of course, in a situation where a private company is dealing directly with the ‘customer’ (and a voter), there have to be certain parameters in which they can operate to take into account the sensitive nature of the task.  Data, for example, has to be ring-fenced.  But to a very large extent, the collection agencies have a degree of freedom in which to operate effectively, and to this end they are often allowed to adopt whatever traditional techniques are most appropriate to ensure the debt is recovered. This can include doorstep collections and in certain cases litigation.
    
Measuring success
So how is the success of a collections agency measured? The first is obviously how much debt is recovered, and the cost of recovery. A second measure is the extent to which recovery informs the government’s write-off policy. This means that if it says a debt is ‘unrecoverable’, the Treasury can clearly see the exhaustive steps that have been taken, and can view any growing debt stock in the proper context.
    
The final measure of success, although probably the most difficult to see, certainly in the short term, is to what degree the debtor is being re-educated and informed of their social and legal responsibility to pay.
    
Different government bodies have different approaches to dealing with an external agency.  Some work in real partnership; others are viewed simply as ‘suppliers’. Some will see more benefit in building a strong relationship with a single provider and others will employ multiple agencies to recover debt operating in a competitive framework. Regardless of how the collection agency is employed, they are working well, and demonstrating that they have an essential role to play.
    
Early processes
So what advice would we give to anyone planning to take on a traditional debt collection agency? Fundamentally, employ them sooner in the process rather than later. Don’t let a debt become ‘old’ before you pass it on for collection, otherwise the customer appears to think he doesn’t ‘own’ it anymore. Go through the early processes quickly – certainly within four to six weeks after the debt has been identified – and if you haven’t been paid, then get your agency onto it straight away.

For more information
For further information contact Roger Eagles on 0870 751 3402 or e-mail reagles@lewisgroup.co.uk