FINANCE: South African Debtor Attitude - So Sue Me
Recent Gauteng Business News
There has been a change in debtor behaviour over the past three months.according to Coface South Africa, the international credit insurer,
"2009 saw debtors for the most part shrugging their shoulders when approached by companies looking to be paid for goods delivered or services rendered," says Jacqui Jooste, operations director at Coface South Africa.
"This was partly the result of court dates taking between 12- 24 months to be finalised. Companies were hesitant to go the legal route because it delayed the process significantly and would cost them money to chase after the debtor."
"In addition, because of the financial crisis, many debtors had no money or assets to make a contribution towards the outstanding debt. As a result, creditors were left with no option other than to make long payment plans or liquidate the company to try to regain some of the outstanding monies," says Jooste.
Coface South Africa then saw a change in debtor behaviour in December 2009. Debtors began paying the outstanding amounts on time, sticking to payment plans and co-operating with creditors.
"The change in debtor behaviour mimicked the market sentiment of recovery," says Jooste. "But this however was short lived. February showed a continuation of the delinquent debtor behaviour we saw for the most of 2009."
"The reasons debtors are reverting back to negative debt payment behaviour is twofold. The first is that while the financial crisis is over, based on economic indicators, we still have a very long way to go on the road to full economic recovery," says Jooste.
"We are seeing continued weakening of some large organisations that have managed to hang in for the last two years. However, the slow rate of the recovery, as well as additional blows such as the Eskom rate increase, are taking their toll."
"Access to finance and the market appetite for spending is resulting in companies having cash flow issues which in some cases are resulting in bad debt or even the liquidation of these companies."
The second reason we believe for debtor behaviour deteriorating again is because debtors have become familiar with the arduous court process, and are using the system to delay paying their debt.
"Pre-crisis, the threat of legal process or liquidation generally resulted in companies working with their creditors to find mutually beneficial payment options to ensure that the debt was paid," she says.
The tendency with some debtors now is to ignore the debt until it becomes overdue, claim inability to pay, and when legal action is threatened, invite the creditor to follow the legal process. This is because the debtor now knows how long it will take for the creditor to receive judgment and payment.
"This trend is destructive in terms of the South African business environment as a whole. It damages the relationship between creditors and buyers, puts creditors cash flow in jeopardy and has a negative impact on the industry in which both parties work", says Jooste.
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