Quick tips on how to monitor your collection agency

It’s fairly common for local governments to use a collection agency in some capacity, such as to collect outstanding fees or fines that the government was unable to collect on its own. But how do you know if your collection agency is doing a good job? A collection agency acts on your behalf, collecting delinquent debts and remitting money back to you so you can use it in your operation.  

In this article, we will discuss tips on how to monitor your collection agency to evaluate its performance. 

Make sure your records agree 

First, you should regularly verify that the total amount pursued by the collection agency agrees to your records. For example, if the agency’s records reflect $860,010 in receivables, this should compare to the amount you referred in total. Mistakes can happen on either side, and this simple check can detect them. 

Ask for online access to the collection agency’s system 

With online access, you can spot-check accounts and evaluate the collection agency’s progress as well as the collection procedures it uses. This is a great way to monitor the agency’s level of effort. You can also make sure the collection agency complies with any special contractual terms or conditions within your agreement.  

The Washington Department of Enterprise Services only awards contracts to collection agencies that offer online account access. Local governments can use these state-wide debt collection service contracts if they have a contract usage agreement with them. Find out more about how to use statewide contracts here.  

Monitor the collection rate over time  

The collection rate is the amount collected as a percentage of the total amount owed. For example, if a collection agency collects $20,000 of $100,000 in referred receivables, that is a 20 percent collection rate. You can also calculate a net-of-cost collection rate, which factors in the commission paid. If you paid $4,000 in commissions, your net collection rate equals 16 percent ($20,000-4,000)/$100,000).  

It’s important to know that a higher collection rate does not always point to better collection agency performance. For example, it may also indicate that your staff did not sufficiently attempt to collect the receivables before you referred them to the collection agency. Refer to our resources below for suggestions on how to improve in this area. 

Be sure to monitor the collection agency’s performance over time and check the collection rate for each receivables batch you send them. Consider breaking it down further by calculating the collection rate based on the size of the receivable or its age. 

When comparing the results of various collection agencies, keep in mind that various factors can affect the agencies’ collection rates, such as the age or type of receivable.  

We hope these tips help you better monitor your collection agency, if you choose to use them. The Office of the Washington State Auditor first introduced monitoring the collection rate in our Accounts Receivable Guide. For more information, check out the resources below. 

For additional accounts receivable-related resources: 

• Accounts Receivable Guide – This comprehensive resource can help you develop policies and identify best practices and other tactics to improve your billing and collection process. Leadership, managers, supervisors and accounts receivable clerks can use information tailored to them in this guide. 

• Internal Control Checklist for Accounts Receivable – This checklist can help you self-assess your government's internal controls over its billing and collection processes. 

• Segregation of Duties Guide – This guide contains a chapter on accounts receivables and how to segregate duties (see Section 2, Chapter 2). It also suggests compensating controls when the size of your staff hinders your ability to segregate duties. 

For help 

Remember, we are here to help. If you have specific technical accounting questions, please submit them using our HelpDesk in the client portal. 

We also have financial management specialists at SAO's Center for Government Innovation available to talk with you about best practices, resources or internal controls. For assistance, reach out to us at Center@sao.wa.gov.