Being able to rely on an effective debt collection procedure and, by extension, sound management of unpaid debts is a major objective for any business. This is a significant challenge at a time when payment terms are getting longer, defaults are on the rise and unpaid debts are multiplying. Here is our advice on how to master this lever and turn it into a powerful weapon against unpaid debts.
Because every delay or failure to pay directly weakens cash flow and can jeopardise the survival of a business, all financial managers must be familiar with and able to quickly initiate appropriate debt collection procedures to obtain payment of amounts due, while limiting the legal and commercial impact.
Beyond a simple administrative procedure, debt collection is a strategic lever in customer risk management, combining prevention, amicable dialogue and, where necessary, structured legal proceedings. Knowing the different phases and steps involved in initiating a debt collection procedure, meeting deadlines, following the right steps, anticipating and mobilising the appropriate resources, and activating the right tools and players are essential concepts to master, which we will clarify here.
What is a debt collection procedure?
A debt collection procedure comprises all the steps taken by a creditor to obtain payment of a sum owed to them by a debtor. This debt may arise from a commercial contract, a service provided, rent or an acknowledgement of debt.
Debt collection procedures always begin with an amicable collection phase, without the intervention of a judge, which is based on negotiation. It is important to keep records of this process, including formal notices to pay and other registered letters, emails exchanged, and any evidence of the debt (invoices, commercial contracts, etc.) and its acknowledgement by the debtor (e.g. emails indicating that they intend to pay the amount owed). This evidence will be useful if amicable recovery fails.
The second option is legal recovery, which requires proof of the existence of the debt and evidence of attempts at amicable recovery, with formal notices being the most important. Judicial recovery aims to obtain an enforceable title to resort to enforcement measures, primarily a payment order, which allows a bailiff to be appointed to handle the recovery.
3 characteristics of a debt eligible for judicial recovery To be eligible for judicial recovery, a debt must be:
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Finally, it should be noted that a debt collection procedure can be carried out by the creditor in various ways: by mobilising its internal team or by entrusting the unpaid debt to a debt collection professional. In the first case, the company's financial manager will have to deploy a whole range of legal and operational measures, combining prevention and dialogue, to ensure the successful completion of this task, which is essential to the survival of any business.
The stages of amicable debt collection
Before initiating legal proceedings, an amicable resolution is strongly recommended. This phase has several advantages: it is quick, inexpensive and, in most cases, allows the commercial relationship with the debtor customer to be preserved.
- From the first day of delay, reminders by email, post or telephone can be effective. Structured follow-up (dashboard, DSO) helps to prevent slippage. Important: all steps must be recorded to build a solid case in the event of a dispute.
- If the reminders are ignored, a formal notice must be sent by registered letter with acknowledgement of receipt, demanding payment within a specific (and reasonable) time frame, generally ranging from 8 to 15 days. Sending formal notices is a prerequisite for any legal action and must include specific wording. To reinforce its effect, you can entrust the drafting and sending of formal notices to professionals such as lawyers, debt collection agencies or bailiffs.
- If this fails and before taking legal action, the company may engage the services of a specialist debt collection agency, which will act on its behalf or for its account. This agency is then tasked with sending professional reminders and negotiating an amicable settlement with the debtor, usually through a payment schedule.
The simplified procedure for recovering small debts
For small debts not exceeding R20,000, South Africa provides a streamlined recovery mechanism through the Small Claims Court (SCC). This simplified procedure is designed for individuals (not companies) and applies to claims that are contractual, for a fixed amount, and already due. The process begins with the creditor issuing a mandatory Letter of Demand, giving the debtor 14 days to settle the amount owed. If the debtor fails to respond or pay, the creditor may then approach the Small Claims Court clerk, who will prepare a summons compelling the debtor to appear in court. The summons is served either by the creditor or, preferably, by the sheriff for reliable proof of delivery. Hearings are informal and conducted without legal representation, with both parties presenting their own evidence directly to the Commissioner. Should no amicable resolution be reached, the Commissioner issues a binding judgment, after which payment may be ordered immediately or through an agreed‑upon instalment plan.
Good to know: opt for amicable settlement... but not indefinitely! There is no legal time limit for the amicable phase. However, it is advisable not to prolong it indefinitely, as this may result in the expiry of the limitation period (five years for commercial debts) or the deterioration of the bad payer's situation to the point of cessation of payments. |
When should you switch to legal debt collection?
When amicable attempts fail or the debtor disputes the debt, legal proceedings should be considered. Only obtaining an enforceable title (valid for 10 years and renewable) authorises the use of coercive measures such as bank account seizure, seizure of assets or seizure of earnings, through a bailiff. There are three debt collection solutions available under legal proceedings:
1. Order to pay
Suitable for uncontested claims, the order to pay is a quick and inexpensive procedure, which often takes only a few weeks. It does not require a hearing before the competent court or the assistance of a lawyer. However, the order to pay requires the preparation of a detailed file containing proof of the existence of the debt and the steps taken to attempt to recover it: invoices, contracts, proof of reminders, etc. The debt must also arise from a contract, a statutory obligation or a commercial instrument (bill of exchange, promissory note or assignment of a professional debt such as a Dailly bill).
After reviewing the evidence, the judge decides whether or not to issue a payment order, which allows a bailiff to seize assets if necessary. In practice, it takes an average of one to two months to obtain a payment order and, if the debtor does not object, it becomes enforceable within one month.
What recourse is available in the event of a dispute with a European business partner? There is a European order for payment procedure (EOP), which applies only to cross-border disputes, i.e. where at least one of the parties has its domicile or habitual residence in a Member State of the European Union (with the exception of Denmark) other than the Member State of the court seised. This procedure is intended for the recovery of contractual claims that are pecuniary, liquid and due on the date on which the application is lodged. The jurisdiction to issue an EAPO is, in principle, that of the Member State where the defendant is domiciled (or has its registered office in the case of legal persons). |
2. Summary proceedings for provisional payment
The application for interim relief is used to request the court to order the payment of a sum of money intended to recover the debt. It is an emergency procedure used when the creditor considers that there is a risk of the debtor ceasing to make payments. It is suitable for claims that are not particularly disputed, even if they are not immediately due.
3. Summons to appear on the merits
This longer procedure is suited to complex disputes and is often used when the amounts involved are high and other options have failed, particularly when the debtor disputes the debt. It involves a traditional court case, with a judgment handed down after the parties have presented their cases. The services of a judicial officer are mandatory, and damages may be claimed.
Those involved in debt collection
A debt collection procedure may therefore involve various parties who are involved in the commercial relationship or acting in support of the claimant.
- This is the company or individual who holds an unpaid debt and can act directly or appoint a third party to recover it.
- This is the party liable for the debt, but retains the right to dispute it if they believe they are not liable. If not, they may propose an amicable settlement (in instalments or otherwise) or be legally compelled to pay the sums due.
- He acts to serve documents, enforce court decisions, carry out seizures or draw up reports.
- Essential in complex proceedings or when the commercial court is involved, the solicitor advises on the strategy to adopt and the competent court, and represents the creditor before the judge.
- This company handles the reminder and negotiation process. Its remuneration is generally calculated on a success basis, which limits the financial risk.
Why is it important to hire a lawyer?
In addition to assisting with drafting letters and negotiating with the debtor, a lawyer specialising in debt collection offers two added benefits:
- They are familiar with the ins and outs of commercial litigation and can anticipate the debtor's objections.
- They assess the chances of success of legal proceedings based on the nature of the debt, the debtor's situation and the competent court.
It should also be noted that the services of a lawyer are mandatory before the Civil Court or Commercial Court for a summons to appear on the merits if the amount of the debt exceeds £10,000.
Preventing unpaid debts: some best practices
The best debt collection is the one that only requires issuing an invoice. To avoid non-payment and having to take more restrictive measures, here are a few practices to implement:
- Analyse your customers' creditworthiness in advance. Commercial risk experts offer business information services that save you from having to research and assess the financial health of your business partners yourself.
- Issue invoices promptly, with clear payment terms negotiated in advance with the business partner.
- Set late payment penalties in line with the legal rate to encourage compliance with deadlines.
- Put guarantees in place: deposits, credit insurance, assignment of receivables, etc.
FAQ – Your frequently asked questions about the debt collection process
- Start by sending reminders for unpaid invoices, then send a formal notice. If this fails, file a claim for payment or take legal action before the competent court.
- The debtor can file a reasoned objection with the judge, prove that payment has been made or claim that the debt is not due.
- These fall under tax litigation: the Public Treasury may use enforcement orders, without going through the courts, for tax debts.
- Through negotiation, legal challenge, or a settlement plan approved by the creditor (or even approved by a judge).
- It can lead to seizure, a deterioration in your credit rating, or even collective proceedings in the event of insolvency.
Always keep in mind that prevention is the best weapon against unpaid debts: structuring your accounts receivable management upstream limits the need for legal action.
