Advice and Opinion

Debt collection processes

Finances are the lifeblood of any organisation, particularly in sectional title schemes where the payment of bills and the regular maintenance of the scheme is of utmost importance, says Johann le Roux, executive director of Propell. If the body corporate cannot collect all the levies due regularly from the owners, the scheme could end up in dire financial straits in a very short time. 

Owners of units in sectional title schemes must realise, he said, that if they do not pay their levies in full and on time they place an unacceptable burden on the others who are paying their levies.

If there is a lack of funds it might even cause the need for a special levy to be raised because the body corporate will not be able to meet its ongoing financial obligations. Defaulters will be unlikely to contribute to this special levy and so it falls on the other owners, once again, to cover the amounts not coming in.

“This is unacceptable, and while some owners might be in a predicament themselves where they cannot pay their levies, the bad news is that even in their cases, indulging non-payment of levies only makes matters worse. The cold hard truth is that if an owner cannot afford to pay his levies, he should possibly be looking for more affordable accommodation,” said le Roux.

If a levy account is handed over to an attorney for collection, it will still take some time for the money to come in as legal processes can be lengthy and the body corporate will be incurring costs, which is not ideal because it places further strain on the other owners.

The usual process for the collection of levies is that the trustees determine the levies and the interest rate to be charged on overdue amounts, in anticipation of non-paying owners and this is only limited by the rule that “no interest which exceeds the capital amount is recovered from the debtor”.

In order to ensure the efficient collection of levies, the trustees must appoint an attorney or company that is experienced in levy collections and that has a good understanding of the Sectional Titles Act. They must be given all the necessary information by the trustees so that they can carry out the levy recovery procedures properly. The collection of outstanding levies is not an easy job and in many cases it is a good idea to involve collection experts from an early stage, he said.

Propell has seen, in their many years of operation, that a body corporate opting to use an arrears finance package, immediately helps the body corporate by alleviating the stress on the trustees to collect the outstanding levies. The way this works is that the company would take over the collection process as well as fronting the sum necessary to put the sectional title scheme back in the “black”, he said.

Using this option is often the better solution that trying to go through all the legal processes alone, he said, as a using an experienced collections company also hands the credit risk over to the company rather than the body corporate carrying it. All the legal fees incurred are usually paid by the collections company and the interest on outstanding amounts will also be recovered from the owner, he said.

“We find that managing agents and trustees alike possibly don’t have the time it takes to continuously follow up on the outstanding bills, but if they employ a professional expressly to do this job, they can get on with the day to day running of the scheme,” said le Roux.

Leave a Comment