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Report of the Strategic Director of Customer & Support Services to
Customer & Support Services Scrutiny Committee – 23rd January 2006.
SUNDRY DEBTOR UPDATE
Introduction
This report reviews the sundry debtor collection performance in 2005/06, the outstanding
debt at 31st December 2005 and provides details of debt written off and collection
performance over the last four years.
Monitoring Sundry Debtor Collection Performance
Income collection performance is monitored on a monthly basis against performance
improvement targets in the Best Value Performance Plan and more detailed improvement
targets in the Customer and Support Services Service Plan. Debt recovery performance is
reported to the Lead Member for Customer and Support Services on a quarterly basis.
Sundry Debtors 2005/06
The sundry debtors account up to 31st December 2005 can be summarised as follows:-
0 - 30 31
Total days days
+
£m £m £m
st
Debt Outstanding 1 April 2005 16.55 13.6 2.95
Add : Bills issued to December 2005 83.95
Less: Income received to December 2005 90.31
Less: Debt written off to December 2005 0.179
Less: Debt charged back to directorates 0.100
Debt Outstanding 31st December 2005 9.91 7.08 2.83
The total value of outstanding debt reduced between April and December 2005, from
£16.55m to £9.91m largely due to a reduction in the level of debt less than 30 days old. Over
30 day debt reduced by £0.12m which arises from some schools not having settled charges
due to the Christmas break and also from several high value accounts subject to complex
disputes. The Financial Services Group (FSG) billing and recovery team have also been
proactively pursuing older debts with positive results. Further comment is made with regard
to this later in the report.
1
Debt Analysis 31st December 2005
The outstanding debt can be analysed by age and Council directorate as follows:
Less part Land
0-30 31-59 60-89 90-119 Over payts/ charged
Directorate Days Days Days Days 120 Days Credits Total accounts
£ £ £ £ £ £ £ (already
included
in total)
Community 2,672,318 439,580 110,646 124,623 603,146 -651,500 3,298,813 295,803
& Social
Services
Envl Services 341,186 68,560 16,071 33,291 97,307 -40,028 516,387 81,779
Chief 1,385,731 11,163 1,175 60 45,408 -0 1,443,537 0
Executives
Dev 895,198 66,672 26,278 9,391 160,778 -182,929 975,388 38,960
Services
Commercial 719,443 18,674 16,644 30,352 145,376 -0 930,489 0
Rents
Corporate 1,320,845 80,326 39,487 16,614 134,884 -49,767 1,542,389 0
Services
Housing 161,804 44,127 11,798 1,947 73,735 -19,522 273,889 17,449
Services
Personnel 0 0 0 0 0 -0 0 0
Services
Education & 442,351 314,790 4,417 117,321 17,365 -221,716 674,528 4,058
Leisure
Total SAP 7,938,876 1,043,892 226,516 333,599 1,277,999 -1,165,462 9,655,420 438,049
debt
Ex RADIUS 0 0 0 0 254,609 -0 254,609 173,718
debt
Total debt 7,938,876 1,043,892 226,516 333,599 1,532,608 -1,165,462 9,910,029 611,767
2
The debt can be further analysed as follows:
0-30 31-59 60-89 90-119 Over 120 Land charged
Account Days Days Days Days Days Total accounts
Group £ £ £ £ £ £ (already included
in total)
Individuals 1,917,989 199,814 66,850 93,815 830,059 3,108,527 426,538
Companies 1,710,764 163,561 110,489 32,578 165,124 2,182,516 11,511
Schools 665,940 115,851 9,736 139,027 -667 929,887 0
Public 2,791,127 550,694 27,215 40,067 25,387 3,434,490 0
Bodies
Total SAP 7,085,820 1,029,920 214,290 305,487 1,019,903 9,655,420 438,049
debt
Ex RADIUS 0 0 0 0 254,609 254,609 173,718
debt
Total debt 7,085,820 1,029,920 214,290 305,487 1,274,512 9,910,029 611,767
The collection rate of SAP debt at December 2005 is 97.8%.
Debt over 30 days old
The BVPP target for reducing outstanding debt relates to the value of debt over 30 days old.
The target for 2005/06 was to reduce the value of over 30 day debt by 10% in the year.
The position at the end of December 2005 showed the value of over 30 day debt had
reduced by 4.3% largely due to the inability due to the schools Christmas closure and the
office shutdown to collect schools and colleges debts before the end of 2005. Within the 31-
59 day debt category there are several high value accounts relating to two public bodies
equating to approx £433k, which were paid prior to the end of December but not actually
credited to the SAP system until 4th January 2005. Taking these transactions into account the
performance would have reflected a 19% reduction which is a positive indication that the
service is well on track to achieve its targets for 2005/6. Also, there are a number of accounts
currently subject to legal recovery, which can, by the very nature, be a slow process. As at
31st December 2005 there are a number of complex high value accounts subject to legal
disputes, six accounts alone totalling £211,433. Improved measures have been put in place
to monitor cases subject to legal recovery and it is hoped a number of cases will be resolved
in early 2006.
The majority of the debt over 30 days is currently subject to ongoing recovery procedures
with a significant proportion being monitored as instalment arrangements with cases at Legal
equating to approx £1.295m either subject to land charges or formal legal recovery action.
Liaison is also taking place with directorates regarding disputed accounts to ensure
resolution is sought as soon as possible. An exercise is in progress to review and improve
the administrative procedures for land charges in conjunction with the respective directorates
and legal services. Within 2006/7 it is the intention to refer selective land charged accounts
for legal recovery, to ensure the accounts do not become statute barred after the 12 year
term.
3
Analysis of Write offs 2005/06
In accordance with performance targets and internal and external audit reports, proposed
write offs are considered by the Lead Member for Customer and Support Services on a
quarterly basis. Details of all individual accounts recommended for write-off are provided for
the Lead Member.
During 2005/06, up to December 2005, the sundry debtor team continued a review of the
older pre-SAP debt as well as more recent debts. Up to December 2005 write-offs totalling
£178,870 were approved.
Quarter Write off Debt outstanding at Write off as a % of total
period end debt outstanding
June 2005 £77,608 £14,817,201 0.52%
September 2005 £84,469 £14,472,989 0.58%
December 2005 £16,792 £9,910,029 0.17%
Cumulative Total debt raised in Total write off as a % of
Write off 2005/06 total debt raised
2005/06
£178,870 £83,948,171 0.21%
The write-offs were charged against the council’s bad debt provision.
Detailed below is an analysis of write offs since 2002 which demonstrates the reduction of
the burden on the bad debt provision and emphasises the effectiveness of debt recovery
procedures undertaken by the FSG. It has to be noted that there will always be situations
when irrecoverable debts need to be written off, such as customers who die with no
redeemable funds, absconders who are unable to be traced, and insolvencies / liquidations.
Year Write off Total debt raised in Total write off as a % of
year total debt raised
2002/03 £883,220 £64,002,597 1.38%
2003/04 £583,034 £84,254,260 0.69%
2004/05 247,243 £92,537,326 0.27%
Provision for Bad Debts
The provision for bad debts now stands at £2.065m, which is considered adequate by the
Audit Commission in the recently completed audit of the council’s accounts for 2004/05.
The cash flow benefit to the council as a result of reducing outstanding debt over the last 4
years is around £250,000 per annum and the annual contribution towards bad debts has
been reduced from £500,000 to £200,000.
4
Analysis of Charge-backs 2005/06
In accordance with the council’s policy a total of £99,504.85 was charged back to originating
directorates within 2005/06 primarily due to the accounts being irrecoverable as unresolved
disputes.
Debt Recovery Performance
Whilst performance to 31st December shows a reduction in over 30 day debt, encouragingly,
more recent evidence suggests an further upturn in debt recovery performance with £1.55m
collected on return from the Christmas break with a number of other long-standing accounts
being settled.
The FSG debtor section also provides an excellent debt recovery service to New Prospect
Housing Limited and Salford Community Leisure Limited. As at 31st December 2005, the
collection rates for these two organisations are 99.6% and 98.7%, respectively.
Overall, significant improvements are continually being made with the Sundry Debtors
service following on from the Service Excellence Award awarded to the team last year for
performance since formation of the FSG.
Sundry debtor performance was one of the key services involved in the award of the
prestigious Local Government Chronicle award for Best Exchequer Function for the City
Council in November 2005. The award was formally presented to members of the directorate
at the full council meeting in November 2005. Additionally, Salford’s sundry debtor
performance regularly tops the charts compared with other Greater Manchester authorities,
which is a further indicator of the improvements in the service since formation of the FSG five
years ago.
Salford’s sundry debtor performance also compares favourably against other unitary councils
within the IPF benchmarking group. Salford’s number of days worth of debt that is
outstanding at 31.3.2005 was 11 days compared to an average of 42 days for other unitary
councils, Salford having the fourth lowest days against 44 other unitaries. Also, Salford’s cost
per invoice at £6.54 is significantly lower than the average of £8.20 for IPF comparators.
Finally, in terms of Best Practice, and how the service is effectively managed, Salford is 82%
compliant against an average of 69% for other unitary councils.
Debt recovery targets 2005/6
Targets included in the Best Value Performance Plan for 2005/06 are to reduce over 30 day
and over 60 day debt by a further 10% from the level of debt outstanding at 31st March 2005.
Debt o/s 10% Target debt Performance Increase (+)
31.3.2005 reduction o/s as at Reduction (-)
£ £ 31.3.2006 31.12.2005 %
£ £
Over 30 day 2,952,052 295,205 2,656,847 2,824,210 -4.3
debt
Over 60 day 1,855,702 185,570 1,670,132 1,794,290 -3.3
debt
5
As described above it is anticipated that these targets will be achieved by 31 st March 2006.
Commercial Rents performance
Members of the Scrutiny Committee have previously raised specific questions in relation to
the recovery of commercial rents. Prior to formation of the FSG the collection of commercial
rents was historically a problem area. Since formation of the FSG this aspect of debt has
been targeted robustly and the administrative procedures prior to taking on tenants has been
reviewed to take the council’s best interests into account. This activity has resulted in positive
results and the commercial rent debt over 90 days old (including Radius legacy debt)
continues to reduce. The overall commercial rent debt at 31st December 2005 was £993,308,
with debt over 90 days being at the lowest level since statistics have been maintained at
£238,547. Debt greater than 30 days was £273,865, 27.6% of the overall debt, once again,
the lowest since statistics have been maintained. Performance over the past four years
relating to 90 day old debt is detailed below:
Commercial Rents debt over 90 days old
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£-
2002 2003 2004 2005
The above reflects an 80% reduction from 2002, 66.7% reduction from 2003, and 37.1%
reduction from 2004.
Reduction in debt over past 4 years
The most accurate barometer to determine effective overall debt recovery performance is the
level of debt over 60 days old. Detailed below is a graph showing the reduction in 60 day old
debt outstanding over the period 2002-2005. Whereas in an ideal scenario debts are
recovered within 30 days, the 60 day threshold is where proactive debt recovery action really
takes effect for most organisations.
6
Debt outstanding over 60 days
6
5
4
£m 3
2
1
-
2002 2003 2004 2005
Within the Best Value Performance Plan, LPI51 (reduction in debts over 60 days old) has
been set up to measure activity in this debt category. The amount of debt outstanding for
over 60 days has been reduced from £5.8m in 2002 to £1.9m in 2005, a reduction of 67%.
Current business plans are targeted at reducing debt by a further 10% per year. At the
request of senior management, performance in this debt area has been monitored monthly
since 2002/3. Detailed below is the percentage reduction up to March 2005.
Reduction in 60 day debt
2002/3 -52.5%
2003/4 -34.6%
2004/5 -23.7%
Further Reports
As requested by Customer & Support Services Scrutiny Committee regular update reports on
sundry debtors will be submitted for consideration.
Alan Westwood
Strategic Director of Customer and Support Services
7
