The public sector must overhaul its debt collection practices, says Karen Banfield of Echo Managed Services
Public sector bodies - and in particular local authorities - have come under scrutiny in recent months for the nature of their debt collection practices. Indeed, recent consumer research we undertook found that local authorities came bottom of the pile, below other service providers such as telephone and utilities companies, when it came to the deployment of good debt collection procedures.
This is backed up by recent reports from both Step Change and Citizens Advice revealing that these organisations are failing consumers when it comes to how they deal with monies owed; unfair practices, the use of bailiffs and heavy-handed collection processes are just some of the issues reported. Clearly, something needs to change - and quickly.
One of the main areas where local authorities are lacking is when it comes to assessing circumstances of customer vulnerability. Considering the huge number of people that have regular transactions with local authorities, this is one of the core issues the public sector must tackle.
StepChange's recent research substantiates this, with three in four of the charity's clients identifying themselves as vulnerable. However, 83 per cent of those who made their creditors aware of their vulnerabilities said at least one didn't take this into account. This is an issue that came up in our research too. Many consumers cited that they hadn't been given access to affordable payment plans, which often pushed them even further into debt.
Many organisations are failing to take into account the vulnerabilities of those in arrears when, in fact, they should be ensuring that they have a full understanding of each customer and be signposting to in-house solutions and free, impartial money advice for those that need it. A short-term payment gain must be balanced against the long-term sustainability of an affordable and appropriate arrangement.
Aside from vulnerability and affordability, local authorities are also falling down on a number of other aspects relating to debt collection. Inaccurate billing, unhelpful staff and overly aggressive tactics that leave customers feeling harassed were some of the other points cited as unhelpful in our research, yet common in the collection processes of these organisations.
What does this poor practice mean for the sector and how can it be changed?
Reputational damage, dissatisfied customers and increased instances of non-payment are just some of the outcomes associated with poor collections procedures. Today, we live in a society where consumers are much more likely to exercise their rights and make it clear, often publically, when they are unhappy. Organisations must therefore adapt to avoid the hidden costs of poor practice. So how can local authorities start to turn the tables?
Don't make assumptions about customer circumstances
We all have the capability to fall into debt at some point; indeed, our research found that 63 per cent of people have been in arrears at one time or another. The key is to fully understand each customer and tailor collection processes in line with their circumstances, the reasons behind their debt and how receptive they are to different payment options. This understanding, and proactive, early engagement, can also help to mitigate debt before it even becomes an issue.
Be open and transparent
Transparency is also crucial. Local authorities should explain any charges and offer customers all available payment options and frequencies to ensure fairer outcomes in all instances. The communication channels these organisations use should also be varied - including telephone, email and SMS - to ensure customers are allowed a variety of ways to engage. SMS and email reminders are low-cost methods that can be used pre-bill, for example, to prepare customers that a bill is on its way, and the value of that bill. In addition, bills should be clear and accurate and customers must be communicated with regularly to retain engagement.
What next for local authorities?
Local authorities have a duty to collect debt in a fair and ethical way. Our research tells us that customers from all demographics have the potential to fall into debt, whether that's through not having the means to pay, forgetfulness or them purposely withholding funds. Ultimately, it must be recognised that debt is just another part of the customer journey and, if handled effectively, can be rectified in a positive manner, without damaging reputation and valued customer relationships.
Karen Banfield, contact centre director at outsourced customer contact specialist Echo Managed Services.