# General Business Category > Business Finance Forum > [Opinion] Bad debt and your business

## Chatmaster

I am caught up in a terrible situation in terms of bad debt seriously effecting one of my businesses.

Since June last year I have had an average of R74,000 per month of non-payments and it shows an increase monthly. The main excuse I have received was that the clients themselves were battling with bad payers.

Now I am trying to figure out if anyone else is picking up the same trend.

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## murdock

i noticed the head lines in the newspaper this morning...middle class people taking a beating with the cost of living.

if every person who owed me money paid me i could pay off my bond...lots of small amounts but a few big ones too...but the cost to recover the debt is toooo costly.

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## Chatmaster

The impression I am getting is that the economic climate in the country might just be worse than anticipated or rather perceived by some load mouthes in the media.

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## tec0

Success rather the lack there off is part of the bigger problem at hand. Allow me to paint you a picture. So how did it come that you see such massif losses? Well let us start at random because no matter how you cut it, it will have the same ending. 

From 1996 to 2010 there was this economic degradation system cultivated by government to enforce laws so that business companies and farming basically broke down. First the interdiction of black business started and came as a heavy blow because companies had to let go of skilled labour and was forced to employ semiskilled workers. Then the partnership was introduced and preferred business became the norm. 

It was at this point where 60% of skilled labour lost ALL value. That is 60% of South African house hold that could no longer pay for their homes, school and poverty started to become a clear picture. Savings was pushed into businesses that that ended up with a 90% failure rate due to black business standings and preferred business. 

This continued till banks started liquidating homes and killing of families to the point where we saw mass suicides, abuse, selling of children, prostitution and drugs took over and established itself as the norm. Facts can be found in local news and popular reality programs on Television. 

At this point property value slumped and a lot of surviving companies took hold of the market and this is where the trouble started. Due to the high property value and low income a lot of people started to rend homes and this became a bottomless pit because they will never be able to own property thanks to the banks and property developers that is owned by the banks. 

*This became a zero risk factor for banks* and thus the credit law was introduced and the right to own property was stripped from ALL South Africans. <<< Not a conspiracy but fact) 

Secondly farm land was reformed and according to new articles Produce became an all time low and was followed by high food prices. Fact only 20% of all reformed land is producing âsomethingâ but basically we are importing all foods.

Along with this a second factor came to play in *the form of labour higher*. Contracts were and are structured on a 30 day bases thanks to labour brokers thus making impossible to get a permanent job. The effects is that people have payslips to show so that can have some form of âcredibilityâ 

( NOW this is the part you may be interested in sir >>> Due to the falseness of the âcredibilityâ created by labour brokers people got loans and was able to obtain goods on credit âlimited creditâ but credit none the less. However when the 30 day contract expires and is NOT renewed the person in question *can no longer pay* for the âcredited goods in questionâ thus YOU sir is losing money.  

Now if you look at what was stated above you will notice that there is more than one system at work and they are all working on the same time thus you lose money. 

Now let us go back to the home loans structured by banks. The Homes are sold at a massively inflated price thus if the home owner wants to sell the house he or she cannot do so because they *will not be able to break even*. There only option is liquidation and as you can imagine how much profit the banks is really getting out of all of this. Please remember the property price was inflated by the banks to start with and we as customers *have not negotiating powers* over the âstandardised contractsâ in question. 

*Once you add all the reasons I have stated here you will see why you and other companies are not getting paid.  *

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Chatmaster (08-Mar-10)

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## murdock

i must say this is not the first time since i started my bussiness that i have had times like these...what i do to survive is cut back pay up any debt and go small...use sub contractors if required rather than employ.

i have put myself into a position where i only have a bond which is less than half the value of my property and 1 vehicle payment which there is less owing on the vehicile than retail value...all credit cards...overdrafts etc are all paid up so i dont have that addtional interest and service fees to pay...i also insist on 50- 80 % upfront deposit depending on the customer new or exsisting...and dont waste money anything unless i can claim tax for it.

it is in times like these where you need to be a cash bussiness...selling hotdogs on the street corner etc...insurance companies  or any other type of bussiness which is not absolutely essentual will take a serious knock from returned debt orders non payments etc.

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## QUINN

In my business I have certainly picked up a massive increase in business since 2009. My listing of bad payers have increased 500 %.

It is a matter of survival of the fittest.
www.track-n-trace.yolasite.com/blacklist

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## jinxster

Some steps you could take to lower / kill your bad debt issues.

*BEFORE* the sale / transaction
1. Check the business / person against either TransUnion or Experian ITC credit checks. If the memberships seem high (for some businesses it will be) there are places to go where you can pay less.

2. In your credit application form (get one if you dont have one), where it comes to references... er contact them.

3. If you sell a physical thing, put on the invoice: The product remains yours until fully paid for. If you render a service which can be "downned", put in a clause about them losing services and no liability gets reduced until they follow the correct termination scheme.

*AFTER* the sale / transaction
1. Get a useful lawyer. I say useful becuase you get lawyers who fill in papers and you get lawyers that get your money. Find one who gets your money. Help them by adding in clauses in your sale. All his charges get billed to the client.

2. Offer a pay off scheme (like Dave A says, getting your money slowly is still a friendlyish option), if it is a person, apply for a garnishing order, it takes very long but at least it isnt a write off debt situation.

3. Communicate with the debtor at least once every month. If they acknowledge debt, it is better than if they start denying it or pleading "different company reg numbers / VAT numbers" (those company t/a companies always bring a clause of you are personally responsible if that company doesnt pay me, but alas, sometimes that goes a bit pear shaped too.

4. This one takes a lot out of you but, offer to buy in shares. Hey, try new things... it works.

5. Er get nasty... er, for the sake of being legal, alas I may not mention no 4 - 123,135,225 in this forum. Hehe.

Just out of interest, why not post some vents? 

Eg (true story a housing agent told me last week) xyz hasnt paid more than R400 in the last 7 months towards rent... (rent for that person on the contract is R4300 pm), but alas... I spotted xyz at the roulette table in the casino...  :Headbutt:

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## tec0

> Eg (true story a housing agent told me last week) xyz hasnt paid more than R400 in the last 7 months towards rent... (rent for that person on the contract is R4300 pm), but alas... I spotted xyz at the roulette table in the casino...


*>>> Note: I donât want to fight.* 

Well clearly you donât know the ice-cold grip of desperation? I see a lot of homeless people gamble. I see a lot people gamble that have lost their jobs. << I used to be one of those people  :Embarrassment:  ) Now do you think I gamble because I had too much money? 

No here is a little mentality check << I know it is not always the truth but for most it is!) Desperate people gamble and always gamble MORE than normal. They hope that they will âmake enoughâ to pay for their car or perhaps pay the outstanding amounts and get in the clear. They do not gamble because they are EVIL or BAD or ADDICTED they do so because it is the only answer they have at the moment... The only surviving hope that the gods may help them.

Now sadly most of them will go home empty handed other may get lucky but donât judge on this please. Yes you may say it is to cover up the truth! For some this is true but for others 3 jobs will not save them... please remember that.

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## Dave A

> Since June last year I have had an average of R74,000 per month of non-payments and it shows an increase monthly. The main excuse I have received was that the clients themselves were battling with bad payers.


I'm surprised it took that long to hit. 

I have probably written off more to bad debt in *each* of the last two financial years than I have in *total* over the preceding 20 or more years of trading. Some of it may prove collectable in the end, but I'm certainly not counting on it.

Historically my uncollectables are very low and it was very rare I had to hand clients over for collection. But when the GFM hit I had a month where only 5% of my regular contract clients paid when they should have, where normally it's only 5% that ever needed prompting. It was a shocker.

Perhaps just as well because we were shocked into action. We give generous payment-up-front discounts. We stay on our debtors ledger like a rash. We don't give credit to a new client until someone has signed their life away. We put a stop service on any client in default who hasn't responded to our first collection call. Where clients make arrangements we are very accomodating. Where clients don't make arrangements or renege, it goes straight to our collection agents.

For the 2009 financial year the sheer magnitude of the problem caught me by surprise and we took quite a bath, but for 2010 we made provision for problems in our budget and systems. The changes have worked - bad debt for 2010 is a third of 2009 (below budget, but still way higher than I'm used to). I've implimented even tighter systems for this financial year and I'm seriously considering registering the companies as credit providers so that I can charge admin fees and the like on anyone that stuffs around.



> Get a useful lawyer. I say useful becuase you get lawyers who fill in papers and you get lawyers that get your money. Find one who gets your money.


This is proving to be an increasingly rare creature.



> ...and it shows an increase monthly.


That's the bit that would worry me the most. Getting blindsided is one thing - letting the problem run is another. From June last year to now is a long time to let a trend like that continue. You're probably being too soft and the word has spread - you're being played.

You simply *have* to change your debtor management strategy.

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## murdock

" I'm seriously considering registering the companies as a credit providers so that I can charge admin fees and the like on anyone that stuffs around."


now i like the sound of that...if i can get more return than i am hving to pay the bank ie 30 % instead of 28 % ....then i become a loan shark/bank and really start making money...and if i have to honour a payment for late payment...charge them R350 like standard does...it all starts making sense...i would then look forward to bad debt because enventually i could stop working and just make money....employ a lawyer and an anaethatist and i can retire on an island.

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## Chatmaster

In general I normally leave my unpaid accounts for maximum of 2 months after the due date continuously communicating with them. If they seize to communicate then I will normally notify them of my intentions to liquidate. This normally works, I have a zero tolerance and do not mess around unless the business I deal with can provide me with a realistic solution for the issue in which case I will work with them and even help them.

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tec0 (09-Mar-10)

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## tec0

> In general I normally leave my unpaid accounts for maximum of 2 months after the due date continuously communicating with them. If they seize to communicate then I will normally notify them of my intentions to liquidate. This normally works, I have a zero tolerance and do not mess around unless the business I deal with can provide me with a realistic solution for the issue in which case I will work with them and even help them.


The zero tolerance things are honesty not a bad way to go. Money is money and you get enough companies that take chances and in the end of the day it is you that have to sit with the losses just because someone didnât do their homework. 

When you say communicate I assume it is by telephone? Well may apologies if I am wrong but phone calls are not a good way to do it. 

I personally would recommend Letters that is delivered to the company in question, and that every letter must be signed for by the âcorrect personâ Then a phone call to correspond with the written letter. I feel this shows the "person" that you are taking steps and the documents he is receiving can and will be used against him when the time comes.  

I hate fear tactics because this is what scamming garbage do to intimidate people. However I letter followed by a fax and phone call shows your intentions to communicate. 2 months is generous and not at all unreasonable. 

I do feel that the power of escalation must be applied until you get your money, if not just feed them to the wolves. I will not even lose sleep over it.  However constancy and a âstep by stepâ approach must be applied for it to work well. 

I am sure you have a good working structure it is just I thought to add it because some âpeopleâ still runs around like a headless chickens trying to get their money back. My advice is to draft a 5 step or 6 step escalation plans and stick with it.   

>> Contact and communicate 
>> Contact and communicate and send letter 
>> Contact and communicate and send letter, fax 
>> Contact and communicate and send final letter, fax 
>> Contact and communicate allow debt collector to make contact
>> Allow legal team and debt collectors to handle proceedings from this point.  

The time frame is up to you    :Cool:

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## Chatmaster

> When you say communicate I assume it is by telephone? Well may apologies if I am wrong but phone calls are not a good way to do it. 
> 
> I personally would recommend Letters that is delivered to the company in question, and that every letter must be signed for by the âcorrect personâ


Nope everything must be documented and I prefer email communications. If a customer phones he needs to send an email as well.

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## jinxster

Sorry Im going to disagree with tec0 on that gambling issue....

Ignorance.... is not bliss. If it was, I would use a 9 iron to get my money out of people then claim, I had no other choice.

Something to tell all those people, "pay all your debts as they become due, then gamble for fun." You may actually enjoy it.

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## murdock

the problem with debt collecting the hard core way is you need to be very carefull...one of my mates got a 9mm in the chest at point blank range from a little guy...so if you do decided to collect this way beware of the unexpected...and rather go for his family they are much easier targets and get better results.

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## tec0

> Something to tell all those people, "pay all your debts as they become due, then gamble for fun." You may actually enjoy it.


No you just want an argument Jinxster...  :Stick Out Tongue: 

However I do love arguments gambling for fun? So you are honestly telling me that on pay weekend people come and gamble for fun.   




> I spotted xyz at the roulette table in the casino...


So only the rich may gamble, and may enjoy the silent hope of getting even more out of life then. And don’t tell me that is not what you said because it is exactly what you said... “Looking down on these people may be fun for you but if the tables were turned then I think your point of view may change. 

Simple case and point: The majority Lotto players in South Africa are very desperate people. But if you can’t play the rich-persons game you end up being the rich-persons toy....

Gambling is sometimes bad YES... But that being said, a wager on freedom is always money well spend. Just ask the slaves of old world American times: where they had to put their lives against the role of a dice.

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## Chatmaster

> the problem with debt collecting the hard core way is you need to be very carefull...one of my mates got a 9mm in the chest at point blank range from a little guy...so if you do decided to collect this way beware of the unexpected...and rather go for his family they are much easier targets and get better results.


I avoid personal confrontations as far as possible, but to be very honest you need think carefully before doing that to me, very carefully...  :Batman:

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## tec0

I see more debt collectors are using police escorts if they feel the person in question is dangerous.

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## murdock

i agree i always try avoid confrontations...the problem with my bussiness is i still believe in the hand shake...the think called a mans word...i meet every sigle customer in person and hand delivered invoices until recently...the first question i always ask if payment is late...is there a problem with the work carried out...if not then there is no excuse for non payment...the kind of people i do debt collecting personally are the ones who for example...went and bought a motorbike with the money he was suppose to pay myself the builder and the plumber...i have no pity on these type of people.

but on the other hand a recent example was a lady whos husband passed away and she is left with a whole lot of problems...i only invoiced her for the quoted work and not all the extras and i am prepared to wait till she gets money to pay because i understand her situation.

unfortunatley my bussiness and the little income i make puts food on the table for my family...you dont pay my family suffers.

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## Chatmaster

I spoke to the Sheriff that handles some of my cases. He also uses some off-duty policemen to assist with some cases. He has been shot, stabbed and assaulted at numerous occasions. Not the kind of job I would like to do.

Don't get me wrong, I have a heart and I have a number of customers that I am assisting in their own problems, if I have the time off-course. But those that do not play with me I go full on to recover my money legally.

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## SilverNodashi

We see this trend as well, but in our case we have a lot of control over the client's IP. since we're generally a hosting company, when someone doesn't pay and doesn't tell us why (we send out payment reminders, then SMS, and phone-calls), then we simply cut-off their websites  :Smile: 

Some see it as cruel, but it's effective. If you want to stay in business and have your website up and running, then the least you can do is to pay your hosting bill as well. It's only fair to pay your debtors when you expect your client's to pay you  :Smile: 

But, with physical labor (i.e. web development, or network installations) this is somewhat of a different ball-game. Even with a 50% upfront deposit we still get clients who don't pay the final bill and simply disappear afterwards

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## Dave Morrison

> I am caught up in a terrible situation in terms of bad debt seriously effecting one of my businesses.
> 
> Since June last year I have had an average of R74,000 per month of non-payments and it shows an increase monthly. The main excuse I have received was that the clients themselves were battling with bad payers.
> 
> Now I am trying to figure out if anyone else is picking up the same trend.



I control myself and have never been in such situation!  Good luck!

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