1.      INTRODUCTION / BACKGROUND:

 Collection of consumer charges is the lifeblood and determines the going-concern status of a municipality. A healthy cash flow is crucial to ensure sustainable service delivery and infrastructure development and preservation.

 It is therefore also appropriately prescribed in terms of Section 64 (Revenue Management) of the Municipal Finance Management Act.

 To increase/improve collections from debtors, it is illogical to commence with collections and demands. A credible, fair and transparent mechanism is necessary. Debt Collection stands at the end of the Income Value Chain and it is therefore important to start at the beginning.

 2.      STRATEGY ON REVENUE ENHANCEMENT AND COLLECTION:

 Briefly, the rest of the strategy (which will possibly be funded by DBSA) includes, inter alia, the following pillars: 

Ø      2.1. Indigents Registration: 

It is fruitless to attempt debt collection endeavors from Indigents.  It is therefore of critical importance to determine with greater accuracy and reliability who Indigent Debtors are.   

Continuous write off of Indigents’ Debts should be avoided by installation of reliable restriction valves that ensures that not more or less than the 6kl of water is supplied per month. 

Those identified through the door-to-door verification process will be screened by the respective Ward Councillor, in consultation with his/her Ward Committee.  The register will thereafter be taken to Council for adoption.   

It is furthermore important to note that the new registration form is more comprehensive in the sense that it provides, inter alia for disqualifying/penalizing of the applicant in the event of misrepresentation.  It also allows for the installation of a reliable water restriction valve, as another control measure.   

Such control will ensure that monthly consumption does not exceed 6 kl and if a person is not indigent, he/she will certainly not agree to the restriction.   

Water purchases expenditure will also be reduced at the same time.  This approach thus counters high consumption which cannot be paid for and future high debt accounts write off. 

During this assignment the debtors’ economic/skills profiles should also be compiled  

This is an integral part of the Revenue Enhancement and Debt Collection Strategy. 

(A detailed costing is attached for the completion of Indigents Application Forms and the compilation of the Indigents Register is attached). 

Ø      2.2. Management, Improvement of the Accuracy and Efficiency of the Meter Reading and Billing: 

This is an area where many complaints are registered daily and in several instances consumers, rightfully refuse to pay their accounts as a result of unreliable readings and charges. 

A process to ensure rendering of credible and reliable accounts is of paramount importance.  This includes controls and procedures to be drafted and implemented, detecting and follow-up of replacement of defective meters.  Meter readings and variance reports must be checked before accounts are printed. 

Feasibility study for prepaid metering should be conducted to reduce the amount of money we “finance” consumers for water and electricity. 

Ø      2.3. Support to the Debt Collection / Credit Control / Customer Care:  

The appointment and training of Debt Collection staff cannot be over-emphasised. The legal processes and requirements need to be focused on. Setting up of a Call Centre for Outbound Communication (Telephonic Debt Collection) and thereafter inbound where consumers can register problems / complaints.  

A Debtors Call Centre will ensure performance measurement and assists with a function for diarizing the steps taken and to be taken. Telephonic contact with consumers in many instances proves to be faster and more effective.  

Customer Care in respect of Applications, Terminations of Service, Enquiries/Queries is timeously dealt with.  A Systematic Dispute/Query Handling System (statutory requirement) to be introduced to ensure that all queries are dealt with. Customer Care is also a statutory requirement. 

Ø      2.4. Management of the Consumer Database: 

Updating consumer information like telephone numbers, ID numbers, etc. Profiling/ Classification of Debtors; Identifying prescribed debts and irrecoverable debts for write off.  Identifying material debt for immediate collection; Revisit consumer application forms. We need to ensure that all tariffs and also the correct tariffs are charged. There are several debtors who are not being charged/fully /correctly charged and council loses income, which it cannot afford. 

Ø      2.5. Identifying Areas for Improvement in Revenue Generation and Collection Processes: 

We need to review the Billing Cycle, Accounts Returned/Undelivered. Alternative sources of revenue and Public-Private-Partnerships should be explored. Grouping of Untraceable Debtors and applying a strategy of appointing a tracer on a “No-trace-no-fee” basis and placing of public notices for such debtors to come to council’s offices to arrange. 

Ø      2.6. Training and Mentoring of Staff: 

Setting up and Training on Systematic Debt Collection and Credit Control Procedures, Processes, Legislation, Customer Care and Guidelines in line with approved policies.Training and capacity building is an area that has been neglected and has accounted for low morale. 

3.      EXPENDITURE MANAGEMENT: 

As important as Revenue Management, is Expenditure Management which is also prescribed per Section 65 of the Municipal Finance Management Act. 

In respect of Cash Outflow (Expenditure side) the following is also critical because how you spend is just as important as collecting revenue. 

Responsible spending is important and the following, inter alia, are some of the questions to be considered: 

• Is the expense budgeted?
• Does the expense provide value for money?
• Is the expense necessary?
• Is the expense to the benefit of the wider community?
• Would the expense, if not incurred create a health hazard or threaten lives?
• Is the expense a statutory requirement?
• Is it a funded mandate?
• Is there a contractual commitment?
• Is the expense income-generating?
• Is the expense the best option?

The following areas must be well managed and in certain areas, improved: 

• Ensure accurate payments, e.g.  no over payments, deduction of discounts.
• Reconciling of Creditors’ Accounts.
• Avoid payments before due date.
• Refinancing of Loan Debt to prime or below prime.
• Ensure value-for-money in spending.
• Strict Budgetary Control / Fiscal Discipline.
• Better returns on Investments without compromising safety of investments.
• More competitive prices / bidding.
• Supply Chain Management Policy adoption.
• External service provides to render services for non-core functions at cheaper rates.

4.      OTHER INITIATIVES: 

• Letters of appreciation for good payers and possible incentives.
• Economic/Skills Profiling of Indigent Debtors to offer work to redeem debts instead of future write off.
• Ensure that unskilled debtors are identified for registration in Skills Development Programmes in relevant SETAS.
• Interest Write-off Incentive for non-indigent debtors (excluding Government, Councillors and Staff).
• Giving 6kl free to indigents only and then only to debtors who are good payers (instead of giving 6kl to all households: for consideration in 2007/2008).
• Recovering certain percentage from Prepaid Electricity Purchases to reduce the debts.
• Executive Mayors’ letter to consumers / rate payers informing them about Income and Expenditure of Municipalities and their responsibility to pay.  Motivating consumers to pay and thanking those who are paying promptly.
• New user-friendly account is being developed and the Printing, Sorting and Mailing of municipal Accounts (a non-core business function) will be outsourced.

• Newsletters will also be initiated in order to communicate with our clients and thereby improving the image of the municipality. Projects and other achievements will also be communicated to the public. Businesses could advertise in the newsletter to cover (at least partly) our newsletter and account rendering costs.
• Investigation/Audit of all Assessment Rates Accounts based on Land Value only as some property owners are not being charged for improvements. Valuator to expedite process.
• VAT and Creditor’s Audit to recover unclaimed/underclaimed VAT and overpaid Creditors.

5.      CONCLUSION AND THE WAY FORWARD:

 Based on experience and research, collections through attorneys and external debt collectors are ineffective. The Theewaterskloof experience is also clear that attorneys are not effective, charge exorbitant fees which are collected from payments received. Consumers and Council are the losers and the attorneys are the winners.

 It is better to build internal capacity and also rehabilitate delinquent debtors because if an amount is paid directly to the municipality today, the money is deposited into the municipality’s bank account and the consumer’s account is credited with the full amount and thereby reducing the account.

 Funds should thus be sourced to obtain external support (“project manage”) the above strategy and when they leave, the knowledge and capacity remains inside. This approach is sustainable.