INDUSTRY NEWS

Managing the dangers of debtors

Studies have shown that approximately 80% of small business enterprises fail within the first 5 years and only 1% of the remainder grow to employ 10 or more people. Further investigation has shown that two of the main reasons for a business’ downfall are the mismanagement of debtors and inadequate cash flow.

 

Efficient debtor management is critical to ensuring your business has sufficient working capital to reinvest and grow.

 

The adverse effect of monies not paid on time has the most negative impact on smaller businesses, and whilst cash on delivery (COD) can be a way to reduce this impact, it is not sustainable when growth is desired.

 

Below are some aspects to consider when it comes to managing the dangers of debtors:

 

KNOW YOUR CLIENT

Prior to extending credit, it is imperative to do a comprehensive credit check to review the payment records and credit information of the potential client. This will help you mitigate your credit risk by providing you with an insight into how potential clients conduct their accounts. 

 

DOCUMENTATION

In order to protect yourself and the consumer, you should have the correct documentation signed before providing services and or goods. Have your terms and conditions drafted by an attorney to ensure that they comply with legislature, are mutually beneficial and are clearly communicated.

 

KEEP SUFFICIENT RECORDS

Having a well organized filing system in place will help you keep track of outstanding payments. This will ensure that you collect payments (i.e. overdue invoices) promptly, which will in turn, assist with controlling your cash flow.

 

CREDIT MANAGEMENT

Close monitoring of debtors is the best way to avoid unexpected or hidden obstacles; however, inevitably, there will be situations when internal measures are no longer sufficient.

 

Organisations should implement the use of debt recovery services, such as offered by Accountability, to manage the risk and effects of bad debts.

 

By incorporating Accountability’s services into your business, you will have access to risk mitigation tools, as well as the ability to safeguard your business and maintain a strong, healthy cash flow by managing your debtors with clarity and transparency.

 

Accountability is a web-based service with the aim of "protecting" businesses through reducing the risk caused by outstanding payments.

 

We are partnered with all the major South African based Credit Bureaus, and our Members have access to an active credit database of 22 million consumers and 3 million businesses.

 

Usually, any notification sent to debtors is perceived to be an empty threat as most defaulters know that amounts below R20 000 are unlikely to be pursued via the legal process.

 

Our notification to debtor differs from the idle threat in as much as there is recourse. We clearly state that should the situation not be addressed by the stipulated date (which is 28 calendar days from the initial notification to debtor as per the National Credit Act), we will act upon our Member's instruction to list the business, directors or in the case of a consumer, the individual, as a default payer with the major Credit Bureaus.

 

Our actions are determined by the provisions of the National Credit Act, No. 34 of 2005 and the National Credit Regulator.

 

Visit us today at www.accountability.co.za to find out more about our Recovery process, as well as for our full list of benefits and support services.