The debt collection process | Safeguarding cashflow for South African businesses

Cashflow is the lifeblood of any successful business, ensuring sustainable operations and financial health. For many business owners, unpaid accounts can strain resources, disrupt day-to-day activities, and limit opportunities for growth. Debt collection offers a structured approach to recovering unpaid amounts, typically progressing from informal negotiations to legal action if required. Below, we outline the various phases of this process.

PHASES OF DEBT COLLECTION

Soft collections and Section 129 Notices

The first step in debt collection involves communicating with the defaulting customer to secure payment through open dialogue and amicable negotiation. For debts under credit agreements, the National Credit Act (NCA) mandates certain steps before litigation, including issuing a Section 129 Notice. This notice informs the debtor of their default, offering an opportunity to resolve the matter before formal proceedings ensue.

A Section 129 Notice notifies the debtor of their right to refer the credit agreement to a debt counsellor, dispute resolution agent, consumer court, or appropriate ombud. This phase aims to encourage resolution or a payment plan to bring the account up to date.

For non-credit agreements, the soft collection process typically begins with courtesy calls and emails. If unsuccessful, a formal letter of demand follows, outlining the consequences of non-payment to prompt a timely response from the debtor.

Payment Arrangements

If a debtor acknowledges the debt but faces financial difficulties, the next step is to explore a feasible payment arrangement, tailored to the circumstances of each case. By signing an Acknowledgement of Debt Agreement, both parties can formalise a payment plan, ensuring the creditor’s rights are protected should the debtor default on the agreed terms.

Litigation Process

When initial collection efforts or payment negotiations prove unsuccessful, the next phase may involve litigation. This process typically includes:

• Issuing a Summons: A summons is filed with a court with jurisdiction over the matter and served on the debtor. It formally demands payment and outlines the potential legal consequences for non-compliance. If unopposed or where a debtor lacks a bona fide defence to the claim, default or summary judgment may be obtained in favor of the creditor.

• Obtaining Judgment: Once judgment is secured, the debtor is legally obligated to settle the debt.

Execution Process

With a court judgment in place, execution can be enforced to recover the outstanding debt through the following means:

• Warrant of Execution: This allows the Sheriff of the Court to attach and sell the debtor’s assets to satisfy the debt, effective when attachable assets are available.

• Garnishee / Emolument Attachment Orders: For employed debtors, a garnishee order can be served on their employer, directing them to deduct amounts from the debtor's salary in favour of the creditor, ensuring consistent payments until the debt is cleared.

OUR COMMITMENT TO EFFECTIVE DEBT COLLECTION

Ackermann Attorneys follows a structured, compliant approach to debt collection, managing each step with professionalism and a commitment to achieving favorable outcomes for our clients. From soft collections to litigation, we assist clients to recover funds efficiently while safeguarding their interests.

Contact us today for assistance with your debt collection needs.