South Africa: lags behind in debt collection

Source: FANews

Euler Hermes publishes second edition of the Euler Hermes Collection Complexity analysis, which looks into debt collection procedures in 50 countries • South Africa is ranked the eighth most complex for debt collection behind Saudi Arabia, United Arab Emirates, Malaysia, China, Russia, Mexico and Indonesia • Sweden, Germany and the Netherlands are amongst the least complex countries.

South Africa is one of the most complex countries for debt collection for businesses according to the latest Euler Hermes Collection Complexity analysis. The country is ranked eighth after Saudi Arabia, United Arab Emirates, Malaysia, China, Russia, Mexico and Indonesia for slowness and complexity of debt collection.

The report measures the level of complexity – 0 (least complex) to 100 (most complex) – of international debt collection procedures within 50 countries analyzed by local payment practices, local court proceedings and local insolvency proceedings. It therefore provides a simple assessment of debt collection proceedings in each country, helping to support decisions and manage expectations when trading internationally.

South Africa’s poor debt collection

The global average stands at 51 on a 0-100 scale, showing a high level of collection complexity around the world. South Africa is in the top 10 of the least performing in international debt collection procedures with a score of 67 and contributes to Africa’s ‘very high’ level of collection complexity. Benin (#9), Togo (#11), Morocco (#12), Cameroon (#15) and Senegal (#31) are rated better than South Africa.

“The local payment context and practices are often complex. Most companies pay debts in 90 days compared with the average 30 and 60 day terms and conditions owing to financial constraints, which are mostly industry driven. In some cases, small to medium enterprises are taking as long as 120 to 180 days to settle debts,” says Euler Hermes South Africa CEO, Stephane Rutili.

Western Europe stands out when it comes to simplifying the life of companies trying to recover their dues. Sweden, Germany and the Netherlands take the lead, ranking as the least complex countries with respective scores of 29, 31 and 33. With a score of 91, international debt collection is three times more complex in Saudi Arabia than in Sweden.

“Retention of title agreements are not commonly enforced in South Africa,” explains Rutili. “The country’s court system is 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.”

“All insolvent estates are administered under the control of the Master of the High Court. The liquidation procedures in South Africa are protracted and dreary – 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.”

Pockets of collection complexity are everywhere

Euler Hermes’ report also demonstrates that the largest economies, most dynamic markets, and the less vulnerable countries do not necessarily entail more conducive a business environment. Pockets of collection complexity exist in all countries, even in Sweden. Indeed, complexity in international debt collection depends on many different factors. At a global level, it appears that the key factor of complexity are by far local insolvency proceedings, which are not always effective, i.e. taking into account priority rules and cancellation of prior transactions.

Find out more about the International Debt Collection Report on Euler Hermes’ website.

Background: A reinsurance agreement is in place between Allianz Global Corporate & Specialty (AGCS) South Africa Limited and Euler Hermes to develop the business of credit insurance in South Africa. Both companies are part of the Allianz group. All trade credit insurance in South Africa will be provided by AGCS South Africa (FSP No 16722). AGCS South Africa, with Euler Hermes’ world market knowledge and risk services expertise supplied via Euler Hermes Services South Africa Pty Limited, will collaborate to provide clients with world-class credit insurance solutions.

To see debt collection analysis click here.

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