Are the times a-changin’ for public sector collections?
September 17, 2018
An article in The Times last week reported that “Councils (and Government departments) are worse than pay-day lenders”, citing aggressive and unfair collection tactics as well as a lack of a joined up approach between departments.
Debt collection practices have evolved a lot recently but with so much scrutiny on the public sector and the ongoing pressure on costs, it is easy to see why some have not kept pace. Despite the pressure on budgets though, there are a number of things that public sector organisations could learn from the emerging best practice.
- Responsible lending practices. In the public sector, lending is primarily in the form of ‘time to pay arrangement’ (for example council tax spread over 10 months) or may be in the form of benefits paid in advance. This creates a potential liability that in many cases the customer may have difficulty to pay. Responsible lending practices should not only consider how much credit to advance to a specific customer but also whether or not those charges should be levied in the first place. For example, is it ‘responsible lending’ to levy charges for late payment of council tax or penalty charge notices (for example) for financially vulnerable individuals?
- Know your customer. In order to bill and collect effectively, it is important to know exactly who your customer is. Are they an individual or incorporated body, do they have the means and intention to pay you, what services do they buy or receive from you, are there any related entities, how do you contact them? There are many sources of external data that can help but the first port of call should be the internal sources of data already held by the organisation and any other organisations with which there exists an agency arrangement.
- Single view of the customer. By understanding the full exposure to a customer, the organisation is better able to work with that customer to keep them engaged while mitigating the risk of non payment. Whilst there has been some sharing of information in the past, especially between local benefits systems, council tax and local authority housing, few councils will have an holistic view of all the debts owed to them by a single debtor. At a practical level it is cheaper to manage one debt position than several, and there are legal considerations too although these are too complex to discuss here.
- A tailored collections approach. An approach tailored to the behaviours and circumstances of each debtor is the best way of balancing efficiency with effectiveness. It combines customer analytics and behavioural science with good systems and processes to deliver a customer journey that is much more relevant and applicable to the individual or type of business. A key component relevant here is that vulnerable customers should be identified early and separated from the standard collection process and treated fairly and with dignity.
When facing a challenge such as this, there are two choices: do something or do nothing. And while it may be daunting to contemplate the extent of change that may be required, I would argue that only one of these options is viable. Start by setting some achievable goals to move towards best practice based on the following premises:
- How do I ensure we don’t unnecessarily add to the customer’s debt burden? Is it the right thing to do to charge for (or even provide certain discretionary) services for certain customers if they cannot afford them?
- Am I putting enough effort into identifying my customer? Do I possess customer data in other parts of my organisation or other associated organisations and is it appropriate for me to access and use that data?
- How do I get a consolidated view of the debtor across my organisation and what legal challenges does this present for me to consider?
- How can I segment my customers better and apply a more tailored approach to collections and recovery in a cost effective manner that doesn’t compromise performance or the cost base?
If you would like to know more about how to adopt a best-practice approach to managing credit and collections, please contact Niall Cooter or Stephen Tebbett.