Traq the Complexity of Debt Collection in South Africa
When it comes to the business of debt collection, South African companies have a few challenges to face. Domestic debtors are having trouble finding cash given the current situation of the economy. This makes it challenging for even big businesses to adhere to the payment terms outlined in their initial credit application forms.
A rating by global insurer Allianz Trade places South Africa as the 43rd most challenging country out of 49 for collecting a debt.
South Africa has a severe level of collection complexity, according to the Allianz Trade Collection Complexity Score, which gauges how challenging it is to recover a debt in a certain nation.
From zero (least complex) to one hundred, the rating gauges the degree of complexity concerning international debt collection methods (most complex). South Africa receives a 67. With scores of 30 each, Sweden and Germany are at the top of the list for the least complicated debt collection, with a global collection complexity score of 49. As central banks around the world tighten monetary policy to tame soaring inflation, financing costs for businesses rise and business insolvencies increase, according to Allianz’s assessment of the complexity of debt collection. According to Allianz, this situation may make collecting debt much harder.
The three regions with the most complicated debt collection complexity scores are, on average, the Middle East, Asia, and Africa. The amount of collecting complexity is generally less severe in western European nations. The advanced and emerging markets have a significant divide. However, Allianz notes that “this disparity has been narrowing over time,” with a four-year decline in the collection complexity rankings of 20 of the 49 countries.
Over the past four years, the global collection complexity score has decreased: it is currently 49, which is -2 points less than in 2018. Despite this encouraging development, foreign debt collection is still exceedingly challenging (level: High) generally. All nations have pockets of collection complexity: Particularly in the Middle East, local payment customs are distinctive, but in most nations, they are a source of the difficulty.
Even though they occur less frequently, particularly in Western Europe and North America, court-related complexity is unquestionably more difficult in each instance
The most challenging, however, are those that pertain to insolvency:
Insolvency proceedings continue to account for 50% of global collection complexity.
The 3 biggest reasons for South Africa’s debt collection complexity rating include:
1 – Due to financial reasons, most companies pay up to 90 days compared with the average 30 and 60-day terms and conditions which are industry-driven.Small and medium-sized businesses sometimes need 120 to 180 days to pay off debts.
2 – The court system in South Africa is hampered by ineffective procedures, backlogs, and overall indifference on the part of the clerks who work there. For the creditor and their attorney, this makes the entire procedure long and frustrating. Unfortunately, this is frequently exploited by defaulters to delay matters as much as possible.
3 – The High Court Master oversees the administration of every insolvent estate. In South Africa, the liquidation processes are drawn-out and tedious, and they hardly ever produce profitable dividends. On the other hand, unless an attorney was involved in the collection before the liquidation, the expense is generally low.