Trust, But Verify
As the oft-quoted line from a Robert Burns’ poem eloquently remarks, “The best-laid plans of mice and men often go awry.” Sometimes, the things we do in our parking operation to decrease our workload (and stress) can end up creating a new set of issues. This month’s question addresses this very topic.
I recently became responsible for our parking department, and I noticed that our operation had outsourced our revenue collection to a few technology providers. Should this concern me? Additionally, what steps should I take to ensure taxpayer money is being handled correctly by these third-party organizations?
Cautious in California
Cautious in California,
Thanks for the question and welcome to the incredible world of parking. You are correct; there are several companies in the parking industry (and, to be fair, many other industries) who collect revenue on behalf of their clients. In my opinion, this model can be useful in reducing or eliminating certain workloads for your staff. That being said, it also requires a different set of responsibilities to oversee the company doing that work.
There are many types of technology companies that operate with a revenue collection model in the parking industry. I am excluding parking operators from this list because, on the whole, I would not consider them technology companies (sorry). Still, they most often collect revenue on behalf of their clients. Here is a list of the types of companies that typically offer a revenue collection model.
• Mobile Payment (payment made after you park)
• Reservations (payment made before you park)
• Citation Payments
• Event Parking Sales
• Permit Sales
Overall, the revenue collection model for these companies works as follows: these companies provide a service on your behalf, then collect 100 percent of the fee for that service (plus any additional service fees). Later, they return a portion of that total fee minus their deductions. These deductions will vary, but can include (but are not limited to): per transaction fee, credit card processing costs, revenue split, mailing costs, and other expenses. A delay from the initial transaction to the receipt of your funds can vary anywhere from immediately to over a month later. This overall service can be paid for either with an ongoing software subscription, a per-transaction cost, or some hybrid of both.
These services can provide excellent value to your operation and offer a solution you would not have otherwise, such as paying for parking on a mobile device. Also, it can outsource tasks that are time-consuming and can require additional staff, such as permit sales or citation payments and collections. As such, these offerings can be a valuable resource in your operational toolkit. However, using these types of solutions require understanding, and managing the risks and tradeoffs of this model.
The first risk is revenue not being collected by the company, even when it looks to the customer as if they have paid. This situation typically occurs when there is some issue with processing the credit card or some other software malfunction. Another impact is a delay in funds. Some companies hold onto your funds for over a month. While this might be necessary for some situations, there is no reason revenue cannot be transferred immediately or within the day.
The risk of company insolvency can exacerbate this delay in payment. While they shouldn’t, some companies use the float from your revenue to finance their daily operations. This event can cause problems if the company runs into financial or funding issues and is not able to pay your revenue back on time or at all. While you have (or should have) legal recourse to retrieve that money depending on the situation, there could be nothing to recover.
Another issue can be parking taxes. Depending on your agreement and vendor, it could be their responsibility or your responsibility to pay for those taxes. While this doesn’t typically impact cities, it can affect other parking operations. Furthermore, many times this tax is on the full transaction amount, not just the amount you received after fees or revenue split.
The final risk is human error. This risk exists in all situations but is complicated by the fact that you have no control or oversight into your vendors’ hiring and HR processes. You might assume they are as rigorous as yours, but you might be surprised otherwise.
With this in mind, what can you do to help mitigate your risk when using this type of service? Here are a few ideas that, when combined and adapted to your situation, can help reduce your organizational risk and hopefully improve overall performance and satisfaction.
1- Trust, but verify. Believe that your vendor is doing good work, but perform regular reviews to ensure that is happening.
2- Perform regular audits from multiple sources of data. At least monthly, check that the data provided by your vendor matches with other sources of data not provided by your vendor. Look into automated solutions to help with this process.
3- Use your credit card processor. This can save you money and give you additional information for audits and troubleshooting.
4- Have revenue deposited into your account quickly. Your revenue is safest in a bank account that you directly control. Additionally, this helps with regular audits.
5- Look for secondary impacts. Include, as part of your audits, data on issues that could be caused by problems with your vendor. These could include an increase in citation appeals due to citations issued despite making a payment, complaints about having to pay to exit a garage after prepaying for a reservation, or booting or towing after paying for a citation.
6- Prevent customer charges after the fact. Require your vendors to absorb the costs of any technical errors in their system. Do not allow them to go back and charge your customers after the fact if the mistake was the vendor’s fault.
7- Require regular proof of financial strength and stability. If a company is handling money on your behalf, they should be stable enough to do so and be willing to prove it.
8- If possible, have more than one option for that service. While this is not always feasible, try to use multiple providers. Having all your eggs in one basket can be convenient. Still, it is not typically the most prudent.
9- Ensure fair contracts and review them regularly. The agreement outlines the rules and expected behaviors for all parties. Make sure it is reasonable to both sides, ensure you know their responsibilities and yours, have ways to ensure their ongoing compliance with that contract, and make sure you have an exit clause.
10- Be willing to switch. While companies should always do a good job and follow the contract (and most do), if they know you will never replace them, you increase your likelihood of subpar service and performance.
When correctly managed, outsourced revenue collection companies can be a great partner for your organization and bring value to your customers. Remember: trust, but verify.
Good luck with your new adventure in parking,
If you have a parking technology (or other) question that you would like me to answer, please send them to me at email@example.com.