Debt collection is an unpleasant but necessary duty for cities that provide utility services such as gas, water, or electricity. Just like any large subset of business customers, some people will not pay their bills on time, or at all. That means cities must proactively try to collect this debt—or lose critical revenue. But what is the best way to go about collecting that unpaid debt?
Unfortunately, we find that many cities don’t collect the right information from customers that would help them more effectively collect unpaid debt. As a result, even when cities want to collect, they don’t have the right information to contact delinquent customers. Many cities then fall into a dangerous spiral—continuing to collect too little information which further prevents them from locating delinquent customers.
Once cities collect the right information, set up better processes, and establish compliance with customers, people tend to pay more regularly. Here are some best practices that we’ve learned over the years at GMA and through working with our debt collection partner Penn Credit.
- Collect identifying customer information. When people sign up for utility services, collect information such as a social security number, a copy of the customer’s driver’s license, a phone number, a place of employment, and contact information for references (such as next of kin). Having this information makes it easier to track delinquent customers. In worst-case scenarios, you can call references if the delinquent customer has “disappeared.”
- Turn over delinquent accounts as soon as you reasonably can. As accounts go delinquent, prepare to turn them over for debt collection within a reasonable period of time. We recommend that once someone is 30-60 days past due, start putting that customer into the debt collection cycle. If you do, there is a higher probability of collecting that debt.
- Review your computer systems to ensure you can generate delinquent customer data reports. Most software companies can help you create an outstanding or delinquent account report if you have the relevant account information. Remember, just because your system only has a pre-established report selection does not mean that you can’t create another kind of report that gives you more account data information. If you are unable to generate the right report even after the vendor and a billing or IT professional attempts to help you, you may want to look for a new billing system.
- Ensure processes are in place to collect 100% of your debt. Since debt collection includes contingency-based fees, you may not get 100% of your money back under normal circumstances. We recommend that cities adopt an ordinance or resolution that allows them to add a collection fee onto the debt so that cities get 100% of their money. It takes some hard work to make sure this happens, but it’s worth the effort. In addition to adopting the resolution or ordinance, create an application that includes specific language referring to the Fair Debt Collection Practice Act that clearly lets customers know that their debt may incur an additional fee.
- Send delinquent customers a final bill and a final outstanding account notice before turning accounts over for collection. While this sounds like an obvious step, we find that some cities don’t send customers a final bill and final outstanding account notice. This is a helpful step in your debt collection process. On the bill and final notice letter, make it clear that the customer may be liable to pay more than the actual debt if your city has adopted the correct resolution and informed the customer at the time that service was established. (See previous paragraph.) This communication generally gets some people to come in and pay.
- Scrub lists to make sure they are as up to date and accurate as possible. Bad data will make your debt collection efforts backfire, especially if you contact the wrong people or bug people who have already paid you. Clean up your data to ensure accuracy. Occasionally, we find a city where the computer system generates accounts that shouldn’t be turned over. If you do that and start sending letters to people who aren’t delinquent, you will unnecessarily anger people.
- Establish a good utility deposit policy. Using historical data, you should be able to project the typical monthly bill for both residential and business customers. Establish a process, upon sign-up, where a customer pays a deposit equivalent to 1-2 months of service.
- Plan ahead to explore ways for customers to pay online. As you’re planning ahead and thinking about better serving customers, start exploring ways for people to pay online if you don’t already offer such services. While credit card fees can be expensive, many local governments are able to pass along the credit card company charges to the customer (usually as a “convenience fee”).
Once you’re a part of GMA’s Debt Collection program, there are two additional best practices that will help you establish better processes and begin to collect debt from delinquent customers.
- Take advantage of online tools that help you track delinquent customer data. Penn Credit offers online tools so that cities can look at data in real time to see when (and if) people are paying. As the debt collection process is taking place, you can easily obtain status reports so you will know important information such as if the delinquent customer is in bankruptcy or deceased. This will provide the documentation you need for “writing off” some of your uncollectible account debt.
- Establish routines for turning over sets of delinquent customer data. Turn your debt over on a consistent systematic basis. Some larger cities might submit accounts on a weekly basis, but smaller cities should submit accounts at least on a monthly basis—even if it’s only a few accounts. Time is money, so the sooner the outstanding accounts are turned over, the sooner you can start collecting.