It all adds up

Written by Peter Wallwork, chief executive of The Credit Services Association

From former tenant arrears (FTAs) to council tax, commercial rates to unpaid rental fees, sundry debts potentially add up to millions of pounds of ‘lost’ revenue to local authorities. And at a time when budgets are being further constricted, and public sector workers are under increased pressure to demonstrate ‘value’, the need to focus on debt has never been more crucial.

Going external
Of course the traditional argument has been to keep the collection of debts ‘in-house’; the thought of employing an external debt collection agency (DCA) to recover council money is an anathema to some who still need to be persuaded that the popular portrayal of debt collectors in the media isn’t true. Whilst many councils are still comfortable using bailiffs, and a similar number will think nothing of engaging a solicitor, the use of an external DCA is considered by some to be a step too far, with an inherent threat of losing control of the recovery process.
    
Fortunately, not everyone thinks the same way, and indeed a good number of local authorities are using private collection agencies widely for all manner of collections from ‘mainstream’ to ‘sundry’ debts. In many ways they have taken their lead from central government. The Department of Work & Pensions (DWP), for example, has been using private collection agencies to recover overpaid benefits since 2003. Others within the public sector such as the Driver & Vehicle Licensing Agency (DVLA) and the National Health Service have similarly issued external tender documents for the collection of penalties and unpaid fees respectively. The examples are there for those who choose to look.
    
The role of the credit department in keeping the cash flowing is becoming more critical than ever, especially in the context of the credit squeeze that shows little sign of easing. Whilst the commercial sector and the public sector are different in many ways, they are similar in the sense that cash is king; without it, they cannot deliver the services on time and on budget promised to their respective ‘customers’.

Addressing concerns
Improving cash flow means having a sound credit management strategy; a sound credit management strategy includes an informed policy on collections, and the possibility of engaging with external debt collection agencies. So for those that have yet to be convinced of the benefits of employing an external agency, what are their concerns?
    
The fear of losing control appears to be the most frequently quoted concern, alongside the need to protect one’s reputation. More than half of those questioned (55 per cent) in a previous survey conducted by the CSA state the key reason for not employing an external debt collection agency is the fear of losing control when employing a third party, and not having control on what is done and said on their behalf.
    
Cost is also a concern. Senior management employ credit controllers or departments to stop debts occurring in the first place. To employ an agency therefore, in their minds at least, is doubling up on costs. It is in effect paying for the same ‘service’ twice – and would mean admitting that their own collections team has ‘failed’.
    
All of these concerns can be easily addressed and indeed overcome. Employing a third party to collect debts – and specifically a member of the Credit Services Association – does not mean losing control, or putting ones reputation at stake. Nothing could be further from the truth. Members of the CSA adhere to a strict Code of Practice (the same Code that was used as the basis for the OFT’s recent ‘Guide’), and for the most part appoint a board director responsible for compliance. There are specific procedures and rules that these members follow with teams dedicated to a specific task – and that is recovering debt.

A professional approach
CSA members are professionals. Their business, their training, and their motivation is all about achieving results for their customers. It is their focus. It is their raison d’etre. Unlike solicitors, for example, it is not a bolt-on service to other services that they may undertake. It is core. They will deploy a series of skills in consultation with their client, rather than ‘one size fits all’. Their methodology is one of engaging the debtor, not confronting them, separating those that ‘cannot pay’ from those that ‘will not pay’. It is this collaborative approach that reaps better results, and maintains the creditor/debtor relationship for the future.
    
Agencies are only paid on results. Yes, that means that they have to be efficient, but often the very fact that a debt had been referred to an external agency makes it more ‘serious’ in the eyes of the debtor who has previously avoided or ignored several attempts by the local authority to collect what is rightfully theirs to collect. Whilst certain legal firms may operate a ‘no win no fee’ service in specific cases, in the debt collection industry, no win no fee is pretty much accepted as the industry standard. Clients, therefore, have quite literally nothing to lose and everything to gain.
    
Credit teams are increasingly measured on what they will understand as DSOs (Days Sales Outstanding); most will have a specific DSO number that has been reached, and their performance – and often their reward – is based on achieving this figure. Far from indicating ‘failure’, the market for debt collection continues to grow because organisations are increasingly recognising how agencies should be utilised as an integral part of a credit management strategy.
    
Necessity, so the saying goes, is the mother of invention. Perhaps ‘innovation’ would be a better word, and to this end local authorities should be prepared to innovate – to think and act differently in how they can keep the cash flowing. And that means actively looking at what the private collections agency have to offer.

For more information

Web: www.csa-uk.com