3 reasons why South Africa is one of the toughest places in the world to collect unpaid debts

Trade credit insurer Euler Hermes has released its ‘Collection Complexity Score and Rating report’ for 2018, which looks at the ease of collecting of unpaid debts across the world.

The aim of the report is to provide a simple assessment of debt collection proceedings in each country, helping to support decisions and manage expectations when trading internationally, Euler Hermes said.

Three main factors were analyzed: local payment practices, local court proceedings and local insolvency proceedings.

Typically, Western European countries lead the pack when it comes to simplifying the life of companies trying to recover their dues. Sweden, Germany and Ireland take the lead, ranking as the least complex countries with respective scores of 30, 30 and 31.

The region also presents the highest number and share of countries at a “notable” collection complexity. 14 out of 16 countries stand at the ‘less severe’ level, the exceptions being Greece and Italy, (both rated as high level of collection complexity).

The Middle East stands at the opposite end of the spectrum with Saudi Arabia and the United Arab Emirates ranking as the most complex countries when it comes to debt collection. With a score of 94, international debt collection is three times more complex in Saudi Arabia than in Sweden.

South Africa

South Africa was given a “severe” rating for its complexity in collecting debts.

The 3 biggest reasons for this rating as provided by Euler Hermes include:

  1. Due to financial constraints, most companies pay up to 90 days compared with the average 30 and 60 day terms and conditions which are industry driven. In some cases, small to medium enterprises are taking as long as 120 to 180 days to settle debts.
  2. South Africa has a court system plagued by inadequate systems, backlogs and general inertia by the clerks that serve within it. This makes the whole process tedious and frustrating for the creditor and their attorney. Unfortunately, this is very often used to the defaulter’s advantage to drag matters out for as long as possible.
  3. All insolvent estates are administered under the control of the Master of the High Court. The liquidation procedures in South Africa are protracted and tedious and they rarely yield any worthwhile dividends. The cost, on the other hand, is relatively low unless an attorney has been involved in the collection prior to the liquidation.

“With the state of the economy at present, domestic debtors are battling with cash availability. This makes it difficult even for large companies to meet the payment terms agreed to on their original credit application forms,” states the report.

Read: South Africa ranking in global tax secrecy index

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3 reasons why South Africa is one of the toughest places in the world to collect unpaid debts