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Improving Cost Recovery in Public Sector Service Operations

Rajiv Desai | December 9, 2022

4 Minute Read

From permitting for events to inspections and code enforcement, cost recovery can be an effective way to ensure you have the resources to support the services you provide are covered — as long as you have a good system and proper tools to implement it. 

Cost recovery refers to the practice of public sector agencies or departments charging fees to cover the cost of the goods or services they provide. As a result, the cost of providing these goods or services is not borne by taxpayers alone, but rather by the individuals or organizations that use the services.  

Why is Cost Recovery So Important? 

Cost recovery is often used to help ensure that public sector agencies are financially self-sufficient and can continue to provide important services to the public without solely relying on taxpayer funding. 

Charging fees also helps to make sure that those who use your government’s services the most can pay their share of the costs. Additionally, charging fees for issues like safety violations can be an effective deterrent and encourage a safer community. 

What Makes Effective Cost Recovery So Difficult? 

One of the biggest challenges with cost recovery is the difficulty of collecting and processing fees from the individuals or organizations that use the goods or services provided by public sector agencies. This can be a time-consuming and resource-intensive process that can create a significant administrative burden for the agency. 

Between all the types of payment collections, processing, and adjustment for subsidies, things can quickly become complicated and expensive. In these situations, time is wasted, permits are not completed on time, and the overall impression of the department is hampered because residents have to wait. 

On top of all this, there are obstacles to getting a cost recovery process in place to begin with. Recovery generally requires an ordinance to be passed to establish the types of services that can be charged for, the amounts that can be charged, and the procedure for collecting and processing those fees. 

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Improving Cost Recovery with Digital Transformation 

Modern software platforms drastically increase your capacity for cost recovery. 

By leveraging technology such as online payment portals, electronic billing and payment systems, and mobile payment-enabled apps, public sector agencies can automate many of the tasks associated with collecting and processing fees.

This can help to reduce the administrative burden on the agency, and it can make it easier and more convenient for individuals and organizations to pay their fees. 

The right system will also make it simpler to map out proposals for cost recovery, helping justify the fees in your proposed ordinance.  

On top of this, a strong system will have robust reporting tools so you can easily prove to city or county government that funds are being used appropriately and effectively, in line with relevant ordinances. 

Cost Recovery Doesn’t Need to Damage Relationships with the Community  

Public service departments may mistakenly assume residents don’t want to pay for some services, but in our experience, people are often willing to pay if they see the value in the service.  

Besides, cost recovery is not always about collecting additional funds! 

Sometimes departments are able to digitize and automate all or some components of existing processes, which leads to cost recovery in the form of reduced charges and savings. Digital processes can often eliminate the need for labor hours, and reduced cost of labor creates cost recoveries.  

Perhaps more importantly (for citizens), when workflows are streamlined and automated, the turnaround time for public requests is much faster and more efficient. These prompt responses from local government make valuable services even more valuable. 

6 Quick Tips to Create a Smart Cost Recovery System in the Public Sector — and How Digital Transformation Helps 

1. Automate as Much of the Process as Possible 

Automating processes like fees and fines helps to reduce human errors and streamline operations, which leads to cost recovery. It also allows departments to collect payments faster and with more accuracy, reducing collection costs while improving cash flow. 

With a digital system, tasks like collecting fees, issuing invoices, and tracking payments can all be done automatically with no additional staff required. This reduces labor costs while also improving the speed of operations.  

2. Implement a Robust Payment Processing System

A good payment processing system helps reduce the administrative burden on your agency, by automating many of the tasks associated with collecting and processing fees. This greatly reduces paperwork and payment turnaround time to ensure that you can efficiently and accurately collect fees for your services 

For example, payment processing available on the 3Di Engage platform allows customers to easily manage shopping carts and make payments through a variety of channels (whether on mobile or web browser) — regardless of pricing complexity. 

3. Set Realistic Pricing and Fees 

Setting realistic pricing for services or programs is key for people to pay them without feeling burdened by the costs. In the long run, this will help to keep people coming back for services and generate more cost recovery. 

With a digital solution like 3Di Engage, it’s easier to set prices for different types of services or programs. Plus, you can experiment with different price points and track which ones are generating more revenue or increasing payment compliance. This helps ensure that pricing is fair, while still maximizing cost recoveries. 

4. Don't Overcharge: Offer Subsidies When Necessary  

Overcharging for services can lead people away from using those services at all, so offering subsidies when necessary will ensure that everyone has access regardless of their financial situation. This helps build trust between your department/agency and its citizens which also contributes towards better cost recovery. 

With a digital process, it’s easy to offer subsidies and discounts for certain services or programs, because finances and cases are all tracked and saved in a central location. Digital platforms like 3Di Engage also allow for custom, personalized workflows so discounts are automatically applied. This helps ensure that everyone has access to services, regardless of their financial situation, while also enabling cost recoveries from those who can pay. 

5. Make Sure Your Cost Recovery System Is Transparent    

Showing where the money goes can help set expectations for how funds are used within your organization and helps ensure public trust in your department or agency. When the public knows what they are paying for, it helps build confidence and trust. This is especially true when it comes to fees and fines: if people know why they are being charged, they will be more likely to pay without feeling like their money is just going into some random pocket.  

With digitized cost recovery, all transactions can easily be tracked and reported on from start to finish in an online platform. This it easier to be transparent so citizens can see exactly how much each service costs and how payments were used for services rendered. 

6. Track Data Regularly 

Data tracking is key when it comes to cost recovery. Analyzing the data regularly can help optimize your fee structure and identify which services are generating the most revenue, so you can adjust accordingly. For example, if one service generates more than another but has the same fees, then adjusting those fees could result in additional cost recoveries. 

A digital platform like 3Di Engage can provide agencies with a central online dashboard, displaying any relevant data in an easily digestible format — no statistics degree required. This allows for straightforward decision making to improve cost recovery processes, and cuts back on the labor normally required to organize and process large amounts of otherwise-siloed data. 

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