The Case for Centralized Debt Collection
I just read an RFP for collection services for a state library system. The specific state is unimportant, and there’s absolutely nothing inherently wrong with the RFP. The library system has overdue fines to collect, and they’re trying to be good stewards of the state’s money.
While I’m not questioning the need to collect library fines or any other fine, it makes no sense to have multiple agencies within a state collect their own debts. This is inefficient from a processing perspective and just isn’t cost efficient. In the same way that most organizations have a single payroll or human resources system, why do states operate multiple collection programs?
I’m not criticizing librarians from collecting overdue fines. When the chief librarian for the state goes to work, focusing on how to stretch their budget to best serve the public, make their libraries more relevant and accessible, and improving services during these challenging times is a better use of their time. Collecting fines isn’t a core competency for most librarians.
And while I’m sure the collection agency they hire will do a capable job, the portfolio of library fines is unlikely to qualify them as a top customer for the collection agency. This means the library will likely pay higher commission rates and recover less than a client with a more robust debt portfolio. It also means that they’ll have to divert time and likely limited resources to managing the contract, managing the vendor relationship and setting policies for the collection efforts.
In contrast, states which centralize their debt collection into a single agency can:
- Achieve better economies of scale by having a single agency work all debts
- Develop and nurture specific expertise in debt collections
- Invest in technology and analytics that maximize collections and enhance customer service
- Hire multiple collection agencies who will be much more focused and responsive due to economies of scale
There are many reasons to centralize collections:
- Utilizing a single agency with a core competency in collections means you gain efficiencies and expertise that deliver enhanced results
- Most departments that do collections as a side function can’t afford to buy the tools that make it easy to repay
- Modern tools support 24/7 self-service, provide convenient online portals and other capabilities, including using automated programs to locate individuals who owe money
- Increased collections revenue can fund other state programs, and these investments will pay for themselves many times over
There are numerous examples of states successfully implementing centralized collections and achieving millions in additional revenues, and it’s not a matter of establishing heavy-handed tactics. It’s often as straightforward as having automated tools to find where people live so notices can be directed to the proper location. In other cases, it’s offsetting state tax refunds to pay outstanding liabilities.
Organizations looking to centralize collection efforts should keep a few objectives in mind:
- Use consistent processes between debt types and make the process much more efficient
- Most people want to use self-service to make their own payments; users can establish their own payment agreements, increasing efficiency, customer experience and revenue
As smart as you think you are, you won’t develop the perfect operational processes from the start. Using an automated, centralized collections operation enables you to collect more efficiently while improving customer service. All of this is an opportunity to make citizens happy, giving state professionals like librarians an opportunity to focus on their core competencies.