How collectors can mitigate risks during consumer debt surge

Our Covid-19 fears may be fading, but the pandemic’s impact is still being felt, especially in the pockets of many South Africans.

When lockdown restrictions put a strain on businesses and countless jobs were lost, consumers turned to their credit cards to keep up with monthly expenses — resulting in worrying levels of debt.  

Data suggests consumers have 20% more unsecured debt in 2022, compared with 2016. Those earning R20,000 or more have unsecured debt levels that are 54% higher than in 2016, and the hard knocks keep on coming.

Rising food and fuel prices are putting a strain on an economy struggling to recover, causing consumers to take on more debt to make ends meet and creating a vicious cycle that is hard to break. These factors are being felt in the business sector, as unpaid debt impedes a company’s cash flow and limits its ability to recover, invest and grow. 

According to Sameer Kumandan, MD of data aggregation platform SearchWorks, SA’s exceedingly high debt-to-income ratio demands an intelligent approach to debt recovery that considers a debtor’s individual circumstances. This includes their affordability and current debt levels.

“Businesses need the most reliable, up-to-date information available to avoid fraudulent accounts and ensure the correct communication channels are used for tracing purposes to recover outstanding monies and, in some cases, deliver summons,” says Kumandan. 

The SearchWorks online platform allows users to conduct live, accurate searches on individuals and companies, and in-depth “know your customer” checks online.

This gives companies access to vital information on potential and existing customers, enabling them to devise fact-based collections strategies to manage costs and maximise recovery rates.

This information can also assist in the decision on whether to grant credit.

“While businesses are required to grant credit in terms of the National Credit Act, they need to ensure they give credit in line with what the customer can afford. If a business does not adhere to this, it could be in danger of irresponsible lending.” 

By using SearchWorks, which offers 160 different search types and gives instant access to more than 20 data sources, including all credit bureaus in SA, debt collectors can perform:  

• ID and bank account verifications; 
• Asset valuation; 
• Live tracing on individual and company records and batch tracing for multiple records at once; 
• Credit, past employment, property and directorship searches; and
• Have access to an income estimator on the new client, all within the confines of the law. 

“A common challenge for debt recovery departments and organisations is not being able to find debtors, as they move around and change contact numbers. Debtors also frequently make payment arrangements, pay for a month or two and then stop paying. Accurate information is vital in this industry as the costs of recovering debt can escalate quickly, particularly when legal action must be taken.” 

Like any good business strategy, efficiency is key. Debt collectors need to maximise resources at the lowest possible cost, while ensuring they are managing their financial risks. They need to do this without wrestling with separate, manual and time-consuming systems.

“Fortunately, this can be achieved by using today’s modern technologies and methodologies. SearchWorks’ easy-to-use and cost-effective platform enables organisations to streamline their processes, giving collections departments the edge they need in a highly competitive market.”

This article was paid for by SearchWorks.