The debt collection process

Debt collection is vital to the operation of any business.  It is the method of seeking payment of debts owed by businesses or individuals (debtors) when they default on their repayments.  

Although debt collection is such an important aspect of business, not many people know what the process of debt collection is in South Africa.  The discussion below is an attempt to give you a better understanding of this vital process.

The steps of debt collection

To successfully collect debt in South Africa there are specific rules or steps that you must adhere to ensure it is a legal debt collection.  Some of the debt collection steps are:

1. A courtesy call

The first step is a courtesy call, where the debt collector contacts the debtor to inform them, in writing, that their case has formally been given to attorneys or other debt collection professionals.  This is a courtesy call so it must be made clear that if the debtor pays immediately, they won’t be liable for legal fees.

It is important to note that failure to inform the debtor of any intended debt collection proceedings is not advised.  Therefore calling and getting the debtor to agree to pay is important to successfully collect the debt.  Should the debtor fail to make a payment or otherwise respond to the courtesy call, the debt collection process moves to the next step.

2. Letter of demand

The second step is the letter of demand.  This letter informs the debtor of the amount claimed, and how that amount was calculated.  The letter of demand is also the last chance for the debtor to resolve the debt collection without involving the courts or litigation. 

If the debt is based on a credit agreement, the NCA regulates that creditors are allowed to add interest on the amount owed from the date the letter of demand is sent. 

It is at this stage, before legal proceedings commence, that you must consider prescription.  The Prescription Act 68 of 1969 states that some debts expire after 3 years from their initial due date.  This period can be extended with mortgage bonds or other forms of security-backed loans.  Prescription is also interrupted should the debtor make a payment towards the debt or acknowledge the outstanding debt.  Should the debt not have been prescribed, and the debtor still fails to make any attempt to make payment after receiving the letter of demand, the debt collection process continues to the next step.

3. Summons and judgment

It is at this step in the debt collection process that the sheriff will serve the debtor with a summons, at their registered address.  The debtor then has ten court days to reply to this summons, asking if they wish to defend the matter or not. 

Should the debtor not serve a notice of intention to defend, there may be a default judgement granted against the debtor.  A default judgement is a shortcut to judgment without having to take the case to trial.  Essentially, a judgement is given without hearing the debtor's version of events.  This can occur when failing to submit an intention to defend.

Should the debtors submit their intention to defend within the ten court days, the case is classed as defended.  The debtor must then set out their grounds for defense, and the case will go to trial.

4. Execution

Once a judgement has been made in the creditor’s favour, the debt collection process moves on to the next step, which is execution.  This can only proceed after the debtor is made aware of the judgement made against them.  This step has four parts to it, all aimed at recovering the debt.

1. Firstly, a warrant of execution is issued against the debtor’s movable property.  This means that the sheriff is authorised to go to the debtor’s property to make an attachment of the property.  Later a sale in execution is held to sell the movable property to recoup the debt that is owed.
2. Secondly, should the movable property prove insufficient to cover the debt, debt collection will move to section 65 proceedings.  This requires the debtor to justify why payment of the debt cannot be made.  The court may then order the debtor to pay the debt off in installments or order the debtor’s employer to deduct an amount from their salary each month, to pay off the debt.
3. Thirdly, should the debtor have money in an investment or savings account, a Garnishee order can be made to have the bank pay the debt directly from the debtor's accounts to the creditor.
4. Finally, should all the previous options prove unsuccessful to recoup the full debt, applications can be made to sell the debtor's immovable property.  Immovable property is property such as land or a house.  This is usually exercised as a last resort in the debt collection process.  Additionally, should the immovable property be the debtor's primary residence, judicial oversight is required.

Example of debt collection

Now that you understand the debt collection process, let’s look at some examples of debt collection.  An easy example is if someone defaults on their car payments.  The dealership may have to resort to debt collection procedures to recoup the money owed to them.  This will require them to hire a debt collector, or lawyers to help them recover the debt.

Become a debt collector

If the process of debt collection interests you, I am happy to inform you that it is easier than ever to start a career in debt collection.  This is thanks to the “Debt Collection” course (also available as recordings and self-study) offered by the Gawie le Roux Institute of Law.  This course provides you with the basic legal skills to work in the field of debt collection.  It includes roles like debt reviewer, counsellor, collector, and more.  This course has a 2-hour “Introduction to Civil Litigation” prerequisite, for those who have no experience with debt collection, or civil litigation. Sign up today to start an exciting career in debt collection.