Debt part of SA lifestyle

Jul 27 2007 2:46PM

Johannesburg - Overspending is killing South Africa's golden goose - 76% of the pay packet of most South Africans is owed even before they earn it. And slow-paying corporates, parastatals and government are killing small and medium businesses.
A newspaper recently reported on a plant-hire company owed more than a R250 000 for two years by government. Among consultants, parastatals are considered notorious for reneging on contracts and paying late or not at all.

The burden this places on small businesses is serious because they are seen as the driver of economies and in SA create 70% of new jobs - when they have the money, that is.

Bad debt slows economic growth. Statistics South Africa estimates that 74 000 judgments are passed each year against debtors. And although South Africa has 12 000 registered debt collectors, they battle to get people to pay.

The National Credit Act, which was implemented on June 1 to try and quell consumer overspending, does little to force companies that renege on payments to contractors to pay up.

Gabriel Davel, CEO of the national credit regulator, says the consumer debt has risen from R280bn in 2002 to more than R780bn now. Each month 15 000 administration orders are issued for civil debt.

The Gauteng department of health, as an example, is owed R426m in outstanding patient fees - R157.6m is owed to Johannesburg hospital alone. It believes that recovery of at least 40% of that is "doubtful."

What that means is that money that could have been spent improving hospitals or medical care disappears.

Louise Rautenbach, a facilitator with training organisation BizTech says, "Debt collection is a challenge. Debt has become part of the South African lifestyle: SA is a heavily indebted society."

When trying to collect debt, Rautenbach suggests that people should keep their cool and try getting beyond the secretary who is a buffer.

"People often say, 'I will fax you your deposit slip now' - it's often a lie. When you speak to the right person take notes and keep them, write down the names of those you speak to, dates and times, refer to points in meetings. Have a face to face meeting, if the person in charge is not available then speak to their deputy."

Rautenbach says that if all else fails and the cost of legal action is greater than the debt - which bad payers rely on - it might be prudent after a year to write off the debt.

Among the rules to ensure cash flow and reduce debt they suggest:

Reach agreement up front, in writing, on the cost of your product or service and payment eg 30 days from date of invoice.
Use a no-fuss invoice and a reply-paid envelope or issue statements by email with bank deposit and EFT-details.
Clients must be billed immediately upon delivery of goods or completion of service.
If you have doubts about your client's ability to pay, request payment of one-third of the quoted price to be paid when the order is placed. If they refuse to pay, this is often an indicator that if you do the whole job they won't pay or will be tardy. The client forfeits this deposit if they change their mind or cancel the contract.
Lies are common to bad payers. "I'll pay next month" or "I've mailed a cheque" are common ploys - if they have not paid within 30 days after a deadline institute debt collection procedures, first a friendly note, then a phone call, followed by a visit.
If they have not paid within 120 days issue a letter of demand, give them 10 days to respond, if they do not pay in that time institute legal action.