Indicators show that the micro-lending industry has been growing quite substantially over the past few years. On the flip side, indicators also show that the number of consumers with impaired credit records is also growing sharply, as also the number of consumers placing themselves under debt counselling. Despite this, both formal and informal credit agreements still form a large part of the South African business economy ranging from simple loan transactions for small amounts of money lent and advanced between two private individuals, to incidental credit agreements arising from transactions where services or goods are sold on credit between a business and its clients, to complex loans agreements provided by banks. With such a multitude of credit agreements being entered into on a daily basis, it is quite important that the credit provider obtains quality information on the debtor in case it becomes necessary to recover the debt after the debtor fails to comply with the terms of the agreement at a later stage.
Understandably creditors measure success in recovery of arrear debts in terms of money collected versus money spent on attorneys and debt collection agents in the collection process. However, what is often overlooked is that the success of the collection or debt recovery process depends on the quality of the information on the debtor gathered and kept by the creditor.
The information on the debtor has a huge impact on the turnaround times for the collection process, because the less information the creditor keeps on the debtor, the more time consuming it becomes for the collecting agent or attorney to gather information and trace the debtor to recover payment. More importantly, with the advent of the National Credit Act and, more recently the Consumer Protection Act, certain requirements must be met before the formal collection processes can commence, which further prolongs the recovery of the debt if measures that comply with legislative requirements are not put in place.
The goal is to obtain as much details of the debtor as is possible in order to locate and determine what can legally be attached to pay for the outstanding debt. It is also important to gather as much information as is possible to determine the debtor’s affordability of the debt (i.e. the net worth or income of the debtor) in order to satisfy payment.
The following may be regarded as essential information for the collection process:
The above information is a tool at the disposal of the creditor to manage or reduce the risks associated with credit agreements. Naturally, the bigger the transaction, the bigger the risks and the more the need arises for the creditor to put the abovementioned checks in place to protect itself from a defaulting debtor.
Owners of businesses that regularly enter into credit agreements should consult a legal practitioner to ensure that they have standard documents for clients or customers to complete that, where possible, requires the above information and is signed by the debtor, thereby greatly assisting with any formal collection process that may need to be instituted at a later stage.