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Fight for Your Due

Apply tough debt collection measures in today’s uncertain economic climate.

Entrepreneur

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Debt Collection

The first and friendliest way of collecting debts once they are handed over to an attorney is for the attorney’s secretary to call the debtor in the hope that may elicit payment. But what happens when it doesn’t?

At this point a summons is issued. The problem is that there are many creative attorneys who will find some technical point to delay payment. This is the time that matters can take to come to court:

Approximately a year to be heard in the Magistrate’s and Regional Court and two to three in the High Court. I have even known of certain instances where companies have closed down in the interim and the debt is written off, or the delaying tactic has worked and the company sued has been liquidated.

Many financial advisors and credit controllers of large and small companies alike have complained to me that they are tired of attorneys rendering accounts for postages, petties and correspondence, while the account remains unpaid and the only entity benefiting is the debtor.

The usual upshot of costs becoming exorbitant is that the debt is written off and the attorney is told to close his file. An already bad debt has just ended up costing more money. The endless costs have quelled the appetite for recovering the debt.

Ivan ‘the Terrible’s’ debt collection techniques

Here are my suggestions for collecting debt over R50 000.

First, I recommend a liquidation of the company/close corporation. A company may be liquidated if it can be shown that it’s unable to pay its debts. I have no doubt that this is the most effective way of
collecting debts over R50 000.

Before a matter is handed over to an attorney, and particularly if this procedure is adopted, the following requirements need to be adhered to:

  • The paperwork is in order (proper proof of delivery, etc)
  • All genuine queries relating to the account have been resolved – there must be no room for the debtor to manoeuvre out of paying the debt
  • Detailed notes have been made of conversations with the credit department of the debtor on why payment is not being made
  • The management of the company believes that the settlement of debt is more important than retaining the customer.

Inability to pay debts

A company is deemed unable to pay its debts if, after receiving a letter of demand demanding payment of the debt, more than 21 days has elapsed since receipt of the letter and the collector has received no response.

A company is also deemed unable to pay its debts if there is a written or oral admission by a representative of the finance credit department of the debtor that the company is unable to pay, because it has cash flow problems.

It’s absolutely imperative to set up a company for liquidation if you receive an admission along the likes of, “We cannot pay our debts because we are awaiting a large payment from an important client,” or “We cannot pay our debt to you because nobody is paying us,” or even, “We cannot pay our debt because business is bad and our directors are trying to obtain finance from a bank or a third party.” These are telltale signs of a long-term inability to pay.

The credit controller should note these responses and confirm in writing to the debtor customer the contents of the telephone call. For example, “I confirm that I telephoned you on 6 October 2012 demanding payment of the sum of R100 000.

During the discussion you advised me you could not pay the debt as you were also owed substantial amounts of money by your customers who were not paying their debt.

I confirm further that there has never been a dispute relating to any of the orders placed but you merely are short of funds.”

An admission is the beginning of a successful liquidation application. Bear in mind that one cannot liquidate a company or a close corporation if there is a genuine dispute about the amount owed. So, for instance, if there is a dispute about short delivery or credit notes not having been passed, or other substantial defences, you cannot liquidate. You then have to issue summons.

If there are no disputes, and you are armed with the debtor’s inability to pay, you can liquidate.

The advantages of a liquidation

  • It’s cost-effective

It can be cost-effective to all parties if one can agree a fee with one’s client so that the attorney does not have to render countless accounts and leave the client in limbo.  Invariably, one can collect the costs from the debtor, or most of the costs, because the debtor is too terrified not to pay under the sword of threatened liquidation.

  • Timing is crucial

In today’s recessionary climate, first come is first served. Those companies that continually phone for the money without following a legal route often end up having to complete long-winded claim forms when the company has been placed into liquidation and receiving a meagre dividend of one cent in the rand years later.

  • The shock effect of a liquidation application

If you follow this route you have to balance the fact that you might not do business with that customer again with the likelihood that you will get paid. However, I have found from experience that companies served with liquidation applications tend to find the money to pay, as it’s costly to oppose the application and file affidavits when there is no defence.

In a liquidation application the technical defences referred to when one issues summons are minimised. The result is that you are normally paid quickly as opposed to waiting years for payment. Ultimately, the prospect of the business being closed down, which is the effect of a liquidation order, outweighs all other considerations.

  • The restructuring of securities

Sureties that are out of date (ie. where there are new directors) can be re-signed, or, if there are no sureties, these can be obtained if the company wishes to make payment of the debt in instalments.

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Cash Flow

Financial Literacy Key To Business Success – Especially In A Tough Economy

What can South African SMMEs do to position themselves for success in tough economic times? Arming their people with basic financial literacy is a good place to start argues UCT Graduate School of Business Associate Professor Mark Graham.

Mark Graham

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financial-literacy

In times of economic hardship, good financial and management skills in a business can make all the difference. According to a recent article in Business Day, international investors are sniffing about South African SMMEs that have proven themselves to be well-run during this time of subdued economic growth – and are also attractively undervalued.

Strong balance sheets and stable management in an environment of slow growth economy with low liquidity adds up to some bargain long-term investment opportunities for international consortiums it seems. Among those who have been involved in investment or buyout offers in the past few months are Clover and Interwaste.

It seems self-evident to suggest that well-run businesses attract investment and success. But what actually makes a business – of any size – well-run in the first place?

There is obviously no short answer to this; good leadership, a clear strategy and a strong and motivated workforce all play their part, but one factor that is often overlooked is financial acumen – throughout the organisation. While the accountants and members in the finance team are expected to understand the numbers, this is not always a core competency required in other departments. Yet, having a good working knowledge of finance at every decision-making level, from new managers to members of the board, can be key.

Even if people don’t need to know a lot about finance in their day-to-day job, the more conversant they are on the subject, the better off they – and the business – will be, according to Richard Ruback, a professor at Harvard Business School and the co-author of the HBR Guide to Buying a Small Business. “If you can speak the language of money, you will be more successful,” he says simply.

Financial savvy will give the marketing manager the ability to demonstrate not only that something is a good idea/product or service, but that it makes financial sense too, for example. And it will make sure that the people in the HR team understand more clearly why reducing staff churn is a good idea not only for company culture but for the bottom line as well.

A knowledge of some basic financial decision-making tools (the all-important balance-sheet, for example) and an appreciation of the difference between profitability and cash flow will ensure that non-financial managers are more likely to effectively participate in business strategy and decision-making. Someone who understands the financial statements of a business understands the business in a way that is not otherwise possible. It’s like looking beneath the hood of a car and understanding how it all fits together and why the car can move forward – or not.

Such people can more confidently identify potential problems and inefficiencies before they impact the overall financial performance, because those warnings are almost invariably reflected in the financials first – and often at departmental level. Critically, they can also help identify financial irregularities, enabling them to call out and stop fraud and corruption in its tracks.

Equipping its people with financial skills is therefore a good strategy for a business looking to position itself for growth and investment. And it makes sense for individuals too – Joe Knight, a partner and senior consultant at the Business Literacy Institute in the US and the co-author of Financial Intelligence, says that an absence of financial savvy is “career-limiting.”

Let’s not ignore the fact that there are challenges however. Finance matters tend to scare a great many people. Traditionally, these areas of knowledge carry the stigma of being impenetrable, and financial literacy is not ideally developed at early levels. According to a study by the Financial Services Board, South Africa currently has a financial literacy rate of just 51%.

This means that roughly one out of every two people is likely to prefer to abdicate from financial decision-making – leaving it to the “numbers” people. But with some intervention and training it is possible to empower individuals to decode these mysteries and get to grips with the language of finance.

All things being equal, it’s not pure luck that allows some businesses to operate well and thrive while others fail. Well-run businesses are generally run by well-informed people. In short, decision-makers who don’t understand basic financial concepts and the language of finance simply don’t know what is going on.

While the SA government is currently talking up the need for foreign direct investment to rescue the country from the economic doldrums, there is much that ordinary businesses can do to position themselves for success. And ensuring that their people are adequately equipped to understand the nuances of business through the language of finance is perhaps a good place to start.

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Cash Flow

Trade Agreement Tips That Will Save You Costs

If you are looking to benefit from trade agreements, you need to keep the following advice in mind.

Tracy Venter

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international-trade

Trade benefits all parties involved. When a country has scarcity of certain resources or lack the capacity to satisfy their own needs, they have the opportunity to trade the resources which they produce in surplus, for the products they need or want.

When goods are transferred from one country to another, it stimulates the economy as products and money is switched between hands. Over the years, the competitive nature of moving goods from one country to the other, negotiating prices and opening new markets has caused certain agreements to immerge to promote trade between the member countries.

A trade agreement is an arrangement between two or more nations in order for goods to move more easily between borders with mutually beneficial tariffs imposed on imports. These agreements ensure that duty tax is removed or reduced on condition that the importer and exporter provide the correct documents. This is all the more reason for traders to familiarise themselves with the current trade agreements in place.

Tip1# Know Whether You Export To Or Import From A Country With A Trade Agreement

There are a few trade agreements that you need to be aware of which will significantly cut duty tax. The Southern Africa Development Community (SADC) Free Trade Agreement (FTA) is one of them. The fifteen SADC member states included in the agreement enjoy an impressive 85% free trade on goods.

Another trade agreement commonly used by South Africans is the South African Customs Union (SACU) which allows duty tax free movements of goods. This means zero duty tax is payable on trade between these countries. Trade agreements with European countries include the SADC-EU Economic Partnership Agreement (EPA) and the SACU European Free Trade Association (EFTA). We have prepared a list of all the trade agreements as well as the countries involved here.

Tip 2# Know Which Certificate Of Origin Is Necessary For The Specific Trade Agreement

Only traders who can prove that goods were produced or processed in a member country may benefit from these agreements. This is why importers and exporters need to submit paperwork attesting that the goods were made in the country listed as the beneficiary of the trade agreement. The proof provided is called a ’Certificate of Origin’.

A certificate of origin often abbreviated to C/O or CoO is a printed form or electronic document completed by the exporter and certified by a recognised issuing body, validating that the goods in a particular export shipment have been produced, manufactured or processed in a particular country.

The exporter has to submit proof that either a) the products were wholly obtained from that country; this means all components and manufacturing originated in that country, or b) that it is sufficiently processed in the country of origin.

In other words, although some components might have been imported, the product was sufficiently transformed, or value was added in such a way that the final item can be deemed as new or original. Furthermore, if a company was registered in one country and the manufacturing plant in another, the certificate of origin would be issued from the manufacturing plant’s country.  There are various certificates of origins used for different countries. Read here for more details about the different documents required to ensure you benefit from lower duty tax.

#Tip 3: Ensure The Certificate Of Origin Is Completed In The Right Manner

These documents must be completed correctly. Most of the information provided has to come from the exporter. If the wrong information has been reported, it can influence the relationship between the importer and exporter negatively.

Common mistakes when filling out a Certificate of Origin may include:

  1. Identifying the wrong country of origin
  2. Using the wrong H.S. code
  3. Providing an incorrect or incomplete and rather ambiguous description of the goods
  4. Not including a description on how the cargo is packed or reporting a total weight that does not include packaging
  5. Exporting goods made from imported material and not sufficiently processed to be deemed as originating from the exporting country.

A lot of information can be misrepresented on the certificate of origin. For this reason, we recommend making use of companies specialising in trade administration to ease the stress and to ensure that all the t’s are crossed and i’s are dotted.

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Cash Flow

Backing You With Smarter Tools

Manage income, track expenses and do more with the ultimate toolkit for your small business.

QuickBooks SA

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You work too hard to work this hard. The good news is that you don’t have to break your back or the bank to run a successful business. Managing your business is easier when you’re using smarter tools with QuickBooks.

Since its launch over 20 years ago, QuickBooks has aimed to power prosperity for small businesses and the self-employed with services that help you with income management, expense tracking and more, allowing you to focus on growing your passion.

The new “Backing You” campaign extends this commitment to support small business owners through the challenges of business ownership – with a little help from Danny DeVito.

“The importance of small business is personal to me. At a young age, I watched both my parents and my sister build their own business from the ground up and struggle to balance family obligations with growing their businesses,” says DeVito.

“When Intuit QuickBooks approached me for this campaign, I felt this was a way that I could give back to this very important industry, show them how to make their lives easier and make them laugh along the way too.”

QuickBooks gives you a set of business tools that’ll do all the hard work for you, making sure you get the time to do what really matters to you. “Because collecting receipts is so 80s, and who has time to chase payments?” says Danny.

Join over 5.6 million customers globally and find the QuickBooks plan that works for your small business on www.quickbooks.co.za. Save 30% on your subscription today! Terms and conditions apply.

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