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Johannesburg - The annual spike in debtor defaults that tends to occur in March each year is due to collections not being properly managed in December to January, international credit insurer Coface South Africa said on Wednesday.
This was because in these months companies mostly operated with a smaller staff complement and credit control was sometimes relaxed, the company said in a statement.
"Customers exceed their credit limit because the limits are not being properly monitored," operations director Jacqui Jooste said.
"The likelihood of a customer obtaining credit through fraudulent means is also increased. During this period credit applications may not be as strictly controlled as would be normally," she said.
More suppliers were also realising in the current economic climate that giving credit was in effect lending money to enable their customers to trade.
"We believe that companies need to be more selective in providing credit. Credit is still at the discretion of the supplier and companies are not obliged to give credit," said Jooste.
Good receivables management and making clients pay on time was vitally important for cash flow management and continued month-on-month profitability. She said the more reliable the company's cash flow, the better positioned it was to take advantage of business opportunities.
To this end, companies should ensure they know their customers' financial standing and the pressures in the specific industry.
"No longer can payment be guaranteed simply because the company has been a customer for many years and hasn't defaulted on payment. In the current economic environment, we are finding that the financial status of a company can change overnight.
"With the continued change in the business environment, organisations need to be focused on the credit they provide. The potential risk remains high," said Jooste.
