Experts in Debt-Recovery.
Specialist Advisors on Credit and Distressed Debt

New Year, Old Debt? Don’t let it happen to you

It’s a well-known fact that during the December/January period, consumers are over-extended. Household debt is not going to come down, not with the splurges of gifts for the festive season and holidays away, not to mention the necessary outlays like school uniforms and stationery. So be prepared and don’t let bad debt ruin the New Year.

During the silly season people often spend the money that was meant for debt repayment, and try to deal with the fall-out in the New Year. But what happens in February? That’s when the real headache starts. Interestingly, it is not just the low-income bracket that defaults on payments; affluent sectors are just as guilty when it comes to letting debt lapse. So be careful to make assumptions of socioeconomic factors or LSM’s—it could be dangerous.

The latest statistics from the National Credit Regulator show an increase in lending for most categories of consumer credit, but also an ongoing deterioration of consumer financial health. The total outstanding consumer credit balance totals R1.36 trillion for 19.6 million credit-active consumers.

In light of this, we would like to offer some advice on putting together an end-of-year collections strategy.

Treat debtors with respect
The bully with the Big Stick approach seldom works. Show some courtesy and preserve the dignity of the relationship.Focus on getting that all-important first payment
Remember that once a person has made the first payment on a debt, the chances that they will continue to pay is much higher.Make sure you put a debt collection strategy and process in place as soon as possible
People are more likely to pay current debt than old debt, so get in early.As a creditor, take a proactive stance.
Send your invoices and statements to clients as soon as possible in December. Most people are paid a bonus early on in the month, so make sure your invoices are covered by these early payments.Always try to resolve queries quickly
A resolved query cancels out a delay in payment.We don’t live in a perfect world
Remember that January may be a tight month and plan for a lean start to 2013 with an eye on cash-flow and outgoing payments.Offer your clients a payment holiday
This allows for a breather for the December spendthrifts and January scrooges—it makes you look more benevolent than a jolly white-bearded man in a red suit. It can be good for sales if you allow purchase with a deferred payment. Moreover, it may help to give you as the creditor a sense of realism, preparing for a potentially bad payment month. If you use this strategy, ensure that your cash reserves comfortably allow for this. Alternatively, payment incentives may also work well. Try to encourage double payments or early payments in December by offering a discount.Watch out for clients who change jobs or resign without another job lined up for the New Year
This can also affect payments. Be vigilant, be consistent.Consider outsourcing—even if it is just for a month or two
Creditors often don’t have the work force to follow-up with debtors or engage in proactive collection during this busy festive season. Whatever you decide, maintain the lines of communication with the client.

After the madness is over, evaluate your strategy. Look back and see what worked and what didn’t work.