Language, payment habits, legal specificities, ways of communicating… Because the success of your debt collection will depend (heavily) on your ability to adapt to local conditions, our experts share their experience and advice to prevent your debt collection efforts from quickly turning into an uphill struggle.
#1 - Juggling opportunity and complexity
Debt collection in Africa is a critical strategic issue for companies operating on the continent. Whilst Africa offers tremendous economic potential, it also poses significant risks in terms of late and non-payment. Payment terms can vary considerably from one country to another.
The DSO (Days Sales Outstanding), a key indicator of debt collection performance, often reaches very high levels in Africa (up to 120 days!), which increases the need for cash flow and undermines companies’ profitability. Given these disparities, an effective debt collection strategy relies on in-depth knowledge of local specificities, rigorous risk management and the use of appropriate tools.
Political and economic instability is a reality for many African countries, influenced by factors such as internal conflicts, frequent changes of government, heavy reliance on raw materials and insufficient foreign exchange reserves.
These factors disrupt the payment chain and the availability of foreign currency to settle international invoices.
#2 – Dealing with diverse payment habits
Payment practices vary significantly not only between African countries but also across different sectors.
In some countries, commercial practices implicitly allow for significant payment delays, partly because judicial debt collection systems are perceived as ineffective or too costly. As a result, debtors know they face little risk of penalties for late payment.
#3- Tackling sluggish legal procedures
In many African countries, judicial systems suffer from a lack of resources. This situation leads to significant delays in the processing of cases.
When payment terms lengthen and the DSO exceeds acceptable thresholds, legal action often becomes unavoidable – but it can take between 12 and 36 months, increasing the cost of the debt and reducing the chances of recovery.
#4- Demonstrating boldness and ingenuity on the ground
Coface’s debt collection experts in France achieved a major success… and a rather ‘ingenious’ one, in dealing with an African country, resulting in the full collection of €2.8 million for the benefit of their client. As part of an insurance contract, Coface was insuring a company specialising in defence and surveillance systems and providing cover against non-payment of instalments related to the project.
Upon completion of the work, the country that had placed the order refused to pay the final invoice. Despite several amicable attempts by the insured client to settle with its debtor, no payment was made: Coface therefore received a request for intervention on this case from the insured party.
As the contract included an arbitration clause, Coface initiated arbitration proceedings before the UNCITRAL (United Nations Commission on International Trade Law). The arbitral tribunal ordered the debtor country to pay €2.3 million, plus €560,000 in late payment interest and legal costs. As the decision was not voluntarily enforced, Coface identified an opportunity and employed a ‘creative’ (but no less effective!) collection method: with the assistance of its lawyers, Coface obtained a protective attachment order from the Liège Court of Appeal for four locomotives ordered by the debtor country from a Belgian company, thereby blocking their delivery.
This decisive action triggered an immediate reaction from the debtor country, which then settled the entire debt. This collection success illustrates Coface’s ability to mobilise all legal and operational levers to defend its clients’ interests: full collection of the debt, via international arbitration proceedings, against a sovereign state.
#5 - Calling on an expert: a strategic necessity
Given the complexity of Africa’s economic, legal and cultural environments, attempting to collect debts on your own can quickly become a time-consuming, costly and uncertain ordeal.
Your in-house teams do not always have the time, training or on-the-ground knowledge required to negotiate effectively, particularly when dealing with debtors based abroad in countries with vastly different commercial practices, languages and legal systems. Furthermore, direct debt collection by the creditor can quickly damage a strategic business relationship.
Entrusting this task to a world-leading player such as Coface means relying on a network of international experts with a local presence on the ground. These professionals combine legal expertise with negotiation skills and know how to adapt debt collection strategies to each specific context. Coface collects your unpaid invoices in 190 countries, including 50 in Africa.
Thanks to their in-depth knowledge of local businesses and a performance-based business model (success fees), Coface’s experts often secure faster and smoother settlements – whilst allowing you to preserve your business relationships and focus on your core business.
Experts to guide you, insights to help you take action: download our whitepaper and discover all the solutions for effectively collecting your debts in Africa.
