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The Newcastle Municipality has officially appointed Medaco Revenue Solutions, a private company, to assist with the recovery of debt – owed by various communities. The outstanding debt is said to be more than R900 million.
The Municipality recently issued a notice stating it appointed Medaco Revenue Solutions to assist with the recovery debt owed by consumers in respect of property rates and service charges. According to the statement, in addition to recovering debt, Medaco will assist consumer debtors in understanding the composition of their outstanding amounts and, where necessary, assist with the signing of payment arrangements with the Municipality.
The Newcastle Municipality further stated, “Medaco will be contacting debtors via SMS, email and direct telephone calls to inform them of any outstanding debt owed to the Municipality. All monies will be paid directly into the Newcastle Municipality’s banking account.”
According to Municipal Manager Vish Govender, the service provider was appointed two weeks back and was done via utilising the transversal tender process of the National Treasury. He explains that this process allows National Treasury to look at the most cost-effective service provider available, ensuring the Municipality does not fork out more money than it should.
When looking at the financial implications of using the private company, Govender explains that payment to the service provider will be made on a commission basis, which will be based on what monies were recovered.
The commission rate is 10%, inclusive of VAT, on monies recovered.
The debt collector will be recovering debt older than 60 days, mainly regarding Newcastle East, including Osizweni and Madadeni.
Govender emphasises that it must be noted, “We have handed over an amount of R903 016 793, comprising of R31 025 353 of business debt and R871 802 276 of individuals to the company.”
This excludes the following:
· Government debt
· Employee debt
· Councillor debt
· Debts under 60 days.
When all these monies are added up, the Municipal Manager states that the Municipality is owed around R1.43 billion.
Furthermore, it was also highlighted, the Municipality will collect the government, employees and councillors debt in-house.
Additionally, Govender explained that Medaco Financial Solutions would utilise an array of tools, such as the issuing of summons, listing bad payers on credit bureaus and risk profiling debtors.
By using the private company, Govender feels the Municipality is taking a step in the right direction, as it will significantly assist in seeing the government entity addressing several issues the entity is currently facing. “If we can collect just 1% of the outstanding debts, it would bring in revenue of R14 million a month.”
He affirms that these monies will assist the Municipality in contributing the necessary finance to continue providing basic service delivery, paying off loans created by previous administrations, addressing the Eskom debt, focusing on repairing failing infrastructure, and ensuring Newcastle Municipality develops.
Moreover, Govender pointed out, “Our collection rate within our in-house debt collection is at 83% and it should be 95%. Those debts are below 60 days.” Further explaining that the Municipality is struggling when accounts are over 60 days. This is because the Municipality didn’t have a system to risk-profile debtors, resulting in them not knowing who owed them or who could pay and weren’t. This is where the service provider would prove to be beneficial, as they have a system that can determine whether a household has people working and where they are employed. “It is unfair that you and I have to pay, but others who can afford to, are not.”
Reflecting on the appointment of Medaco Revenue Solutions, Faizel Cassim of ActionSA, stresses, “I Feel strongly that it should be done in-house, to sabe most of the expense of R140 million. Also, give our local attorneys a chance to come on board to assist with collection at a fraction of the cost. Why are our local businesses being side-lined?”
Cassim has further questioned why this debt was allowed to escalate to this point and why it was not resolved earlier on. “It is going to be difficult to collect huge amounts from Individuals now because of the affordability to settle.”
DA councillor and executive committee (EXCO) member Bebsie Cronje said that even though her party was not in support of the appointment of a debt collector, especially as this is not the first time a service provider has been employed to collect outstanding debts. “We have gone down this road before and it didn’t work, with people losing their jobs because the service provider was fired.” However, she adds that the arrears are an issue, especially in Newcastle East. “The Newcastle Municipality does need to make a plan to collect the debts, but we have a department which is meant to be responsible for this.”
With the system now coming into action, several Newcastillians will no longer be able to shirk off their financial responsibilities and contribute to the running of the community. What are your thoughts on the matter? Do you feel this system will prove beneficial to the Newcastle community?
Share your views in the comment section below.
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2 Responses
Why are we paying someone to collect these monies, the entire department whose job this is should then be closed. We are again paying twice for one service!!!
This just highlights the incompetence of our municipality. The municipality has within its structure a debt collection department. If the municipality has to outsource debt collection then close this defunct department. Next why use out of town collecting agents when we have highly competent local firms to do it, makes one wonder who’s getting a kickback here. There are a lot of unanswered questions that will be swept under the carpet. Only ACTION SA can bring financial stability to Newcastle.