Financial Data
Updated 29 Feb 2020

Fight for your due

Apply tough debt collection measures in today’s uncertain economic climate.

Ivan Zartz, Entrepreneur, 04 May 2013  Share  0 comments  Print

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The first and friendliest way of collecting debts once they are handed over to an attorney is for the attorney’s secretary to call the debtor in the hope that may elicit payment. But what happens when it doesn’t?

At this point a summons is issued. The problem is that there are many creative attorneys who will find some technical point to delay payment. This is the time that matters can take to come to court:

Approximately a year to be heard in the Magistrate’s and Regional Court and two to three in the High Court.

I have even known of certain instances where companies have closed down in the interim and the debt is written off, or the delaying tactic has worked and the company sued has been liquidated.

Many financial advisors and credit controllers of large and small companies alike have complained to me that they are tired of attorneys rendering accounts for postages, petties and correspondence, while the account remains unpaid and the only entity benefiting is the debtor.

The usual upshot of costs becoming exorbitant is that the debt is written off and the attorney is told to close his file.

An already bad debt has just ended up costing more money. The endless costs have quelled the appetite for recovering the debt.

Ivan ‘the Terrible’s’ debt collection techniques

Here are my suggestions for collecting debt over R50 000.

First, I recommend a liquidation of the company/close corporation. A company may be liquidated if it can be shown that it’s unable to pay its debts.

I have no doubt that this is the most effective way of collecting debts over R50 000.

Before a matter is handed over to an attorney, and particularly if this procedure is adopted, the following requirements need to be adhered to:

  • The paperwork is in order (proper proof of delivery, etc)
  • All genuine queries relating to the account have been resolved – there must be no room for the debtor to manoeuvre out of paying the debt
  • Detailed notes have been made of conversations with the credit department of the debtor on why payment is not being made
  • The management of the company believes that the settlement of debt is more important than retaining the customer.

Inability to pay debts

A company is deemed unable to pay its debts if, after receiving a letter of demand demanding payment of the debt, more than 21 days has elapsed since receipt of the letter and the collector has received no response.

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.

It’s absolutely imperative to set up a company for liquidation if you receive an admission along the likes of, “We cannot pay our debts because we are awaiting a large payment from an important client,” or “We cannot pay our debt to you because nobody is paying us,” or even, “We cannot pay our debt because business is bad and our directors are trying to obtain finance from a bank or a third party.” These are telltale signs of a long-term inability to pay.

The credit controller should note these responses and confirm in writing to the debtor customer the contents of the telephone call. For example, “I confirm that I telephoned you on 6 October 2012 demanding payment of the sum of R100 000.

During the discussion you advised me you could not pay the debt as you were also owed substantial amounts of money by your customers who were not paying their debt.

I confirm further that there has never been a dispute relating to any of the orders placed but you merely are short of funds.”

An admission is the beginning of a successful liquidation application. Bear in mind that one cannot liquidate a company or a close corporation if there is a genuine dispute about the amount owed.

So, for instance, if there is a dispute about short delivery or credit notes not having been passed, or other substantial defences, you cannot liquidate. You then have to issue summons.

If there are no disputes, and you are armed with the debtor’s inability to pay, you can liquidate.

The advantages of a liquidation

  • It’s cost-effective

It can be cost-effective to all parties if one can agree a fee with one’s client so that the attorney does not have to render countless accounts and leave the client in limbo. 

Invariably, one can collect the costs from the debtor, or most of the costs, because the debtor is too terrified not to pay under the sword of threatened liquidation.

  • Timing is crucial

In today’s recessionary climate, first come is first served. Those companies that continually phone for the money without following a legal route often end up having to complete long-winded claim forms when the company has been placed into liquidation and receiving a meagre dividend of one cent in the rand years later.

  • The shock effect of a liquidation application

If you follow this route you have to balance the fact that you might not do business with that customer again with the likelihood that you will get paid.

However, I have found from experience that companies served with liquidation applications tend to find the money to pay, as it’s costly to oppose the application and file affidavits when there is no defence.

In a liquidation application the technical defences referred to when one issues summons are minimised.

The result is that you are normally paid quickly as opposed to waiting years for payment. Ultimately, the prospect of the business being closed down, which is the effect of a liquidation order, outweighs all other considerations.

  • The restructuring of securities

Sureties that are out of date (ie. where there are new directors) can be re-signed, or, if there are no sureties, these can be obtained if the company wishes to make payment of the debt in instalments.

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About the author

Ivan Zartz, Entrepreneur

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