4.3 Respondents’ Views on Revenue Collection Data Presentation
4.3.7 Debt collection processes
98
sitting with an out-dated database on the system. As a result, the revenue section is sending invoice to the wrong people using old information. This has a negative impact because there is a very high risk of current customers absconding making payments as the accounts will not be in their names, thereby affecting revenue collection.”
99
regular issuance of the demand letter to long overdue accounts was useful in understanding if Nongoma Local Municipality uses all the tools that are in place to improve revenue collection and reduce the long overdue debtors. Based on the finding from respondents of Nongoma Local Municipality employees, 84.5% believe that the revenue collection unit is not issuing demand letters to encourage the debtors to pay while 15.5% believe that this is being done. This indicates that one of the factors that is affecting good revenue collection at Nongoma Local Municipality is the poor implementation of credit policy which was put in place to help Nongoma Local Municipality improve its revenue collection rate. However, the municipality should realise that demand letters can be a critical part of receiving payment for its services because, from psychological standpoint, it is often quite effective in getting a client to take your invoice seriously (Gumede and Dipholo,2014). It notifies the client that, if necessary, the municipality will take legal action to receive a payment. When the client weighs out the cost of legal fees, they are more likely to reconsider the invoice. If the dispute goes to litigation, the municipality will have a detailed outline of all circumstances leading to non-payment.”
Table 4.20 Frequency Table showing legal action taken against debtors
Frequency Percent Valid Percent Cumulative Percent
Yes 8 5.1 5.4 5.4
No 140 89.7 94.6 100.0
Sub-Total 148 94.9 100.0
No Response 8 5.1
Total 156 100.0
100
Figure 4.21 Pie Chart showing legal action taken against debtors
“According to the crediting control policy of Nongoma Local Municipality, after sending demand letter to a long overdue debtor and if the debtor does not respond on arranging on reducing the amount owing, the revenue section can escalate the matter to the attorneys of the municipality for legal actions against the debtor. It was essential for the researcher to investigate whether the municipality is making use of the internal controls that are in place to improve revenue collection and reduce the long overdue debt. Based on the finding from Nongoma Local Municipality employees, 94.6% disagreed that revenue collection unit is escalating the matter to the Municipality attorneys for their intervention and 5.4% agreed that revenue collection unit involves their attorneys once they followed all the required step that encourages a debtor to come and pay for his or her long overdue amount. In this instance, it is apparent that Nongoma revenue section does not utilise all the available resource that are put in place to encourages the long overdue debtors to come and pay for their long overdue accounts, which straightens the argument that revenue section is not making use of the internal controls that are put in place to improve the revenue collection.”
Table 4.21 Frequency Table showing the tracing of missing debtors by the municipality Frequency Percent Valid Percent Cumulative Percent
Yes 8 5.1 5.4 5.4
No 140 89.7 94.6 100.0
Sub-Total 148 94.9 100.0
No Response 8 5.1
Total 156 100.0
101
Figure 4.22 Pie Chart showing the tracing of missing debtors by the municipality
“Alexander (2010) notes that in South Africa, households in metropolitan areas are reported to account for R42.1 billon or 65.3% of outstanding debt to metros, followed by businesses which account for R18.4 billion or 28.4%. Debt owed by government agencies is approximately R1.6 billion (2.5%) of the total outstanding debt owed to metros. This indicates that the very same challenge of accounts that are in arrears is not only affecting Nongoma Local Municipality only, even metros are having the same challenge. It was therefore important to establish whether the Nongoma Local Municipality trace missing debtors as this would ensure improved revenue collection. According to respondents from Nongoma Local Municipality officials who were participating in this research, 94.6% believe that the revenue section is not tracing missing debtors to recovery the outstanding amount and 5.4% believe that it does so. This indicates that one of the weaknesses of revenue collection is letting missing customers with debt go without even putting effort to trace them which results in a huge balance of debtors.”
Table 4.22 Frequency Table showing whether respondents think that outsourcing an agent to collect debtor can reduce the long overdue debtors.
Frequency Percent Valid Percent Cumulative Percent
Yes 105 67.3 70.9 70.9
No 43 27.6 29.1 100.0
Sub-Total 148 94.9 100.0
No Response 8 5.1
5%
90%
5%
YES NO
No Responses
102
Total 156 100.0
Figure 4.23 Pie Chart showing whether respondents think that outsourcing an agent to collect debtor can reduce the long overdue debtors
“To sustain a profitable business, one must collect payment for products or services rendered.
However, some customers are not reliable and do not fulfil their debts (Koelble and LiPuma, 2010). The older the debt gets, the harder it becomes for a business to pursue payment from the customer. In such a case, a third-party collection agency can help a business recover unpaid debts. Hiring of a collection agency increases a business’ chances of collecting overdue debt as it is the agency’s primary focus. Collection agents are trained professionals equipped with the best techniques to coerce debtors to pay as they are incessant, aggressive, and often report unpaid debts to credit bureaus (Koelble and LiPuma, 2010). A collection account negatively affects a debtor’s credit score, and hence debtors will often make payment arrangements with collectors just to avoid credit damage. Considering this, 70.9% of respondents indicated that there is a need of a collecting debt agent while 29.1% indicated that there is no need of collection debt agent for the Nongoma municipality to collect overdue debt. This indicates that outsourcing a collection agency is an alternative source of revenue collection for the municipality.”
103