How People Collect Payment -Debt Collection-
Questionnaire Survey to 100 Business Owners and Managers in Lilongwe
Small business owners need a healthy cash flow to pay their rent, employee salaries and other bills on time and to keep their business running.
However, late payments from clients can often delay cash flow.
This often happens even if you provide the best service to your clients.
In some cases, it can take several months or even a year or more before payment is received.
Some people find it too much trouble to remind them and give up trying to collect payment.
In this article, we will show you how other business owners and managers are dealing with debt collection issues.
Business PLUS Malawi conducted a survey of 100 randomly selected businesses in Lilongwe and also interviewed debt collectors.
Period of Survey: 1st-17th March 2021
Number of Valid Responses: 100 Business Owners and Managers
1.1 Have you had difficulties with late payments from your customers?
More than 80% of companies found it difficult to get paid by their customers.
1.2 If yes, how many times in a year do you have difficulties receiving your payments?
43% of those who answered ‘yes’ said they had difficulties receiving payments 2-5 times a year and 17% said they had difficulties 10 or more times a year.
2. What is the longest period of time that a customer has not made a payment?
Despite the fact that most companies set a payment deadline of 1 month after issuing an invoice, 24% of companies said that it took more than 1 year for payment to be made.
3. If a customer does not pay by the due date, what do you do to receive payment?
The survey found that there are several ways to get payment from customers.
Around 70% of businesses said they continue to patiently remind their customers.
Only 17% of companies said they would seek legal advice, debt collection agencies or the police.
4. Have you ever given up payment from a customer?
34% of businesses say they have given up on payments from customers for the following reasons;
- It became too much trouble to remind them.
- The customer has become untraceable.
- The customer has closed their business.
- The customer was in financial difficulty and had no way to pay.
Our survey shows that some companies have given up trying to get paid after many reminders and long waits, without engaging a specialist such as a lawyer, a debt collector or the police.
The main reasons given for not contacting a specialist include not knowing who to contact and the cost of hiring a specialist.
In the survey, 9% of companies said they had used a lawyer, 5% had used a debt collector and 3% had involved the police.
Some lawyers are professionals who specialise in debt collection, but they generally charge a certain amount of legal fees before they start work, and if the collection amount is not sufficient, the amount obtained may be negative.
The police may help you to find a debtor who has run away, or write a police report to the court, but they cannot force the debtor to pay.
We recommend debt collectors to get money back from debtors because their fees are reasonable and they take care of everything, including negotiating with the debtor, taking the debtor to court and asking the police.
We therefore asked three debt collection companies in Lilongwe about their fees.
The first debt collection company’s fee is 15% of the amount collected plus MK30,000 for operating costs.
The second debt collection company’s fee is 15% of the amount collected and 5% must be paid as a non-refundable deposit before operations begin.
The last company charges 20% of the amount collected, but no deposit and no operating costs in case they are not successful.
Debt Collecting Fee
|Total Commission||Operational Cost|
|Company A||10% of the amount recovered||5% of amount recovered|
|Company B||15% of the amount recovered||MK30,000|
|Company C||20% of the amount recovered||None|
If they fail to collect your payment, you will not have to pay anything more than the deposit and operating costs.
To ensure that you get your payment back, it is important that you keep all your documents such as invoices, Local Purchase Orders (LPOs) and Delivery Notes in case you have to go to court.
If you are tired of reminding debtors to pay, consult a professional before you give up.
There are a number of debt collection agencies in Malawi.
You have the right to receive payment in exchange for providing a service or product.