This article deals with how a creditor can collect outstanding debts from their debtors. In today’s current economic conditions companies are defaulting on their payments. A strategy needs to be formulated to assess the warning signs and implement an action plan to be first in line to receive payment.

The following are warning signals of serious cash flow problems in a company:

1. ” Cheque is in the post!”
2. Telephone number disconnected
3. Repeated requests for documentation
4. I will take care of the account
5. Broken two or more promises
6. I know I received the goods/services but whoever is responsible is…
7. Can’t pay – do whatever you want
8. Return to sender mail
9. Refer to drawer cheque
10. Dispute arises which was not raised previously

These are good reasons to hand over to a collection agency earlier than the prescribed 90 days: Generally the terms and conditions of the credit granted are broken if an account is 30 days and older. By now, the relationship would have soured, creditors will express their concern for lack of response for payment and the debtor will be mailed all statements and letters.

Companies can easily fall into financial difficulty. However, what we learn from research is that debtors need to be assisted to be financially responsible. Companies and individuals need to understand the value of money and that paying off their debt will give them more flexibility. If they out of credit, they will have no margin for error in case of emergency and will become a nightmare or a vicious cycle of seeking credit, stress and ultimately, insolvency.

Private companies, close corporations and to a degree trading trusts have a separate legal personality and has important consequences when extending credit. Creditor must be aware that shareholders/directors, members of trustees are not personally liable for the debts incurred by the business.

What is the process for collection debt?

Rules of court

An attorney is not required for any of the legal actions. However, it must be published and gazetted along with all the relevant rules of the court regarding debt collection. Every company has the right to collect debt in accordance with these rules.

Letters of demand

A letter of demand is sent to the debtor with specific wording customized to their needs. Often the debtor will pay up or agree to make another payment arrangement. This is to avoid legal action and other consequences such as further costs, summons, court-order, judgement, property attachment etc.

Legal Action

Documents are sent to the Clerk of the Court and a case number is issued. Once the original documents are returned and have been accepted, they are sent to the Sheriff who then serves them to the debtor. In the case of a default judgement this only goes to the Clerk.

Consent / Acknowledgement

It is preferable for the debt to pay off the debt, by a reasonable and agreed monthly instalment. The debtor should sign an Acknowledgement of debt that can be used to apply for a default judgement if the debtor fails to meet the agreed obligation.

Strategy

A good strategy to accurately communicate with each debtor to gather information and apply pressure to pay is necessary.

Below are tips for creditors to successfully implement a Debt Reduction Strategy and motivate companies to pay on time.

• Agree the price upfront and confirm the order with a written agreement, terms and conditions and a signature before resources are committed.
• Send invoices to companies on a daily basis as there is a direct correlation between it takes to receive payment and the submission of an invoice.
• Be accurate and concise so that the company cannot use the excuse that they did not receive the invoice and remember to state all the necessary details.
• Check for creditworthiness to ensure that companies who are granted credit can afford to pay. Rather spend money now on a credit bureau check such as Compuscan than taking chances.
• Demand full detail of the company as creditors have the right to know whom they are dealing with.
• Ensure that a surety is signed. In the event that the company closes down, creditors have recourse from the company who benefited from the profits.
• Use the latest technology to make it as easy as possible for the company/debtor to pay.
• Offer discounts if the company agrees to pay within a few days.
• Apply strict credit control policies and stick to the terms and conditions.
• Contact the right person and mark the invoice ‘private and confidential’
• Rather than sending statements one after another, send one letter demanding payment. This is a sign of determination rather than desperation.
• Take action if the company/debtor is unable to pay and stop credit immediately and hand it over to a collection agency.

If you want to learn more about “Collecting when a Company crumbles” contact us at Tel: 021 888 6000 or e-mail us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .