Tough Debt Collection Measures

The need to develop drastic measures to collect outstanding debts has, unfortunately, in our South African society become the order of the day.
The object of this article is to enlighten persons in the field of credit on effective means of collecting debts.

The “friendly” attorney’s approach

The first and friendliest way of collecting debts once they are handed over to an attorney, is obviously for the attorney’s secretary to make a call on the debtor in the hope that the call elicits a payment. Sadly, most of these calls receive a “promise to pay” which is rarely forthcoming and so one has to proceed to the next step in an attempt to collect the outstanding amount(s).
Obviously, the next step is to issue a summons. The problem that I find with issuing summons is that there are many imaginative attorneys who will defend the matter simply to delay payment. The attorney will use some technical or creative point which, notwithstanding the fact that the money is owed, will merely delay payment for a year or two. This is the time that matters take to come to court, a year being approximately the time it takes for the matter to be heard in the Magistrate’s and Regional Court and two to three years in the High Court. Horror of horrors! I have known of certain instances where (i) companies have closed down in the interim and the debt is written off, or (ii) where the delaying tactic has worked and the company sued has been liquidated. And what about payment of the costs to continue litigation?
Many financial advisors and credit controllers of large companies have complained to me that they are sick and tired of attorneys rendering accounts for postages and petties and correspondence on a never-ending basis, while the account remains unpaid and the only entity benefiting is the debtor who has successfully warded-off another action. The upshot, sometimes, is that because costs have become so exorbitant, the debt is written off, and quite rightly, the attorney is told to “close his file”. The appetite for recovering the debt has been lost as a result of the endless fees which have to be paid to the instructing attorney.

Over the years, Ivan has worked out the best way to collect debts and if you are interested in hearing more about this, please send us a message using the special form we have provided.

Inability to pay debts
A company or close corporation is deemed unable to pay its debts if after a letter of demand has been sent to the registered office of the company or close corporation, demanding payment of the debt, (which letter must be served by the sheriff) and more than 21 days has elapsed from date that the letter has been sent and no payment or response has been received.

A company is also deemed unable to pay its debts if there is a written or oral admission by a representative of the finance credit department of the debtor that the company is unable to pay, because it has cash flow problems.

Tell-tale signs of an inability to pay are if one obtains an admission such as

“we cannot pay our debts because we are awaiting a payment of a large sum of money from Company X” or
“we cannot pay our debt to you because ‘nobody is paying us’”, or
“we cannot pay our debt to you because ‘business is bad and our directors are trying to obtain finance from a bank or a third party’”.

From a practical point of view, the credit controller should note these responses and confirm in writing to the debtor customer, the contents of the telephone call,

e.g. “I confirm that I telephoned you on 6 October 2012, demanding payment of the sum of R100 000.00. During the course of the discussion you advised me that you could not pay the debt as you were also owed substantial amounts of money by your customers who were just not paying. I confirm further that there has never been a dispute relating to any of the orders placed but you merely are short of funds”.

Assuming there are no disputes about the amounts and that you are armed with the debtor’s inability to pay, one then proceed with the chosen legal process.