Municipal Collections Can Greatly Improve Cash Flow In A Bad Economy

With increasing frequency, municipal collections is becoming a more viable and cost effective cash flow solution as the current economic crisis is negatively affecting many city, county and state governments.

Faced with higher unemployment, business downsizing, bankruptcies, foreclosures, as well as growing budge deficits, government debt is also growing.

As such, more and more the growing trend is for governments to outsource their debt to third party collection agencies.

These debts include unpaid utilities (electricity, gas and water), real estate and property taxes, unpaid court costs, child support payments in arrears, delinquent traffic and parking tickets, bad checks, parks and recreation fees, and library fines.

Since its more difficult for governments to borrow money in a tight economy, local, county and state governments have to look for other sources for revenue and cash flow. Seeking recovery from delinquent and unpaid debts is a better alternative in many situations.

Knowing when to outsource your municipal collections is very important. Here are some guidelines that will answer such questions as:

• When Should I Consider a Collection Agency?
• What To Look For?
• Advantages and Disadvantages of An Outside Collection Agency

When To Outsource Municipal Collections?

Here is where an outside third party collection agency can be a great help. They will have the necessary staffing, equipment (software, phone systems, skip tracing capabilities, etc.), as well as expertise to collect your delinquent accounts. They are often much more efficient as well.

It's important to note that timing is key here, since the older a debt is, the harder (and more expensive) it is to recover it. Statistics prove that an account that is 30-60 days past due has about a 95% recovery rate. An account that's aged 12 months or more shrinks to about a 10-20% recovery rate.

Depending on your states' laws, the cost of collection can be added to the debtor's fees, thereby making it at zero-cost to the government.

What To Look For?

• Recovery Rate
  One of the most important areas to consider is the agency's recovery rate. While the percentage charged for money collected is also important, the recovery rate is a much better indicator of an agency's ability to collect. And it will mean far more total dollars recovered for you.

  If you submitted a total of $10,000 with a collection agency that only charges 20% commission but has a recovery rate of only 35%, you would only get $2,800. On the other hand, if you submitted another $10,000 worth of debt with a collection agent that has a 70% recovery rate and charges a 35% commission, you would collect a total of $4,550.

• Pricing
  Most collection agencies charge a percentage that can range from 20-40%. Some charge as high as 50% of any monies recovered. There are flat fee-based agencies that charge a flat fee, regardless of the amount of the debt, which means you get to keep more of your money.

• Collections Approach
  Its common knowledge that some in the collections industry have less than a stellar reputation. You should make sure that the agency you're considering operates fully within all federal and state laws. Also, ask to see copies of their demand letters. You want to know exactly how they're communicating with your customers, and the quality of those communications.

Advantages and Disadvantages of
An Outside Collection Agency

Advantages