How to Turn Government Debt into an Asset

Debt has long been a persistent reality for state, local and federal government agencies. Uncollected U.S. outstanding receivables now stand at an estimated $200 billion, and a significant portion of these accounts are as old as 12 years. In the meantime, budget gaps continue to expand by the billions as the demand on government services grows and revenues remain flat. How are cash-strapped government agencies addressing this mounting debt? By taking a step back to examine their accounts receivables and optimizing their current debt-collection process while simultaneously assessing how their portfolio might generate a new infusion of revenue.

Now more than ever, agencies are overhauling their regular cycle of collection for a more holistic, end-to-end approach that maximizes yields, stems the generation of future debt and creates budget certainty with repeatable future accounts receivables performance. According to a May 2014 research survey of 133 state and local government officials conducted by the Governing Institute, 45 percent of respondents said they consider debt as something that can be turned into an asset.

Many agencies are unsure and unaware of how to implement the most effective collection strategies to meet key objectives. Fortunately, a revenue-assurance strategy can fuel interest by establishing standards to help agencies achieve three primary goals:

Turn stale debt into a new source of revenue

For many agencies, a debt portfolio is nothing more than a line item on a budget to roll over year after year. It’s time for government officials to view these portfolios as an asset rather than a liability or noncollectable debt. Rather than write it off as having ostensibly zero value, there are ways to extract new revenue from stale debt for immediate budget and balance-sheet relief.

Critical to success is finding the right experts and tools to examine a debt portfolio and recognize its true value in the open market. For example, $2 million of unpaid parking tickets may be worth only $1 million in the open market, but it’s still an asset that can immediately generate revenue and offset rising government expenses.

Through a combination of consultative services and data and analytic tools, government agencies can determine the viability of a stale-assets sale and the potential market value of uncollectable debt. High-risk account identification, liquidity of assessments, probable asset calculation and potential liquidation rates are tools provided by seasoned consultants that can help agencies turn debt into revenue.

Reduce delinquencies and minimize current debt

To thwart the growth of stale debt, it’s critical that agencies examine the current processes they have in place for debt collection. The most effective approach—be it in-person, phone, mail, Web or social media—is one that best suits an agency’s preferred mode of communication. The use of collection optimization tools is an important piece of the strategy for reducing delinquencies and preventing debt accumulation. These tools assess each constituent or business at the account level to determine the best contact method, time and message for engagement.

A significant part of minimizing current debt involves evaluating citizens’ ability to pay back what they owe. By using scoring models to identify which accounts should be pursued most aggressively or show the greatest signs of delinquency, agencies can prioritize their collection efforts and thereby increase the chances of recovery.

For agencies that outsource their collection efforts to a third party, there are tools available and best practices used that ensure the best performance from collectors. To begin, every agency should closely examine their data to ensure they’re handing over the best collectable debt to a third-party collector. Once the proper debt has been identified, the next step is making certain the data being passed along to a collector is accurate.

While managing third-party collection agencies is never easy, having an organization that can help an agency manage its collector and calculate future assets, potential liquidation rates, and contact rates can help an agency plan for unanticipated write-offs better and budget for the future better.

Improve future accounts receivable streams

Looking forward, agencies can minimize future uncollectable transactions through the use of cutting-edge authentication, address standardization and verification, and point-of-new-service tools and analytics. Rather than wait until monies become irretrievable, savvy agencies can minimize future difficult-to-collect accounts by ensuring the right people are receiving the right benefits from the time of initial transaction as well as ensuring those responsible for any outstanding monies owed can be contacted when necessary.

Together, these combined strategies can significantly help agencies monitor and address at-risk accounts faster and more efficiently for greater revenue on collections and minimal future stale debt.

Managing and collecting debt is a complicated and time-consuming process. There’s certainly more than one way for agencies to collect delinquent debt, but if there’s one thing government officials can agree on, it’s that debt management processes need to be improved.

An effective revenue-assurance strategy relies on optimizing existing traditional collection methods while simultaneously leveraging innovative approaches such as point-of-transaction collections. One way to accomplish this is by creating a 360-degree view of constituent debt. This 360-degree view of the constituent will be accessed when an individual comes in to acquire a new service or benefit, is notified of his or her outstanding debts and is directed to resolve those debts before the new service or benefit is provided. This encompasses a number of steps, including validating constituent identity and verifying contact information through a unique persistent personal identification number. A critical component of any debt-collection protocol is the ability to leverage all constituent interactions to the satisfaction of the debt.

Now is the time for change. By combining consultative expertise with cutting-edge technologies, a revenue-assurance strategy can enable agencies to turn stale debt into a new source of revenue, take action to minimize current debt, and improve future accounts receivable streams. With this plan in place, agencies can begin moving from risk management to budget certainty for years to come.

Barbara Rivera is president and general manager of Experian Public Sector. 

(Image via Stephen VanHorn/Shutterstock.com)