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Doing good while doing business

Bigen Africa Principal Revenue and Financial Management, Wallie Louw, on “A Smarter Approach to Manage Revenue”

IMFO-Award-winning-stand-2015

Bigen Africa was one of more than 100 exhibitors who participated in the 2015 Annual IMFO Conference and Exhibition held in Gauteng in October.  The IMFO Conference is one of the most important events for finance decision makers in the public sector and Bigen Africa clinched  top honours for the Most Originally Designed Stand.

 Revenue Management – a smarter business approach

Smart municipalities manage their ‘own revenue’ effectively to deliver sustainable services and infrastructure.

The financial position of most of South Africa’s municipalities is in dire straits. According to National Treasury a combined debt burden of R95 billion exist in Local Government, indicating a pervasive inability to deal effectively with financial challenges. The total debt owed to most local authorities escalated drastically over the last year alone. This means that many of them are kept afloat by government grants and other external funding assistance.

Why have municipalities been struggling for so long to deal with these challenges and how can they overcome them?

We know that most municipalities are faced with a magnitude of revenue-related problems.

It seems that the main reasons for this untenable situation relate to legacies of the past, such as abject poverty that led to a culture of non-payment and the loss of skills and operational capacity. Generic challenges such as poor data integrity in municipal systems, ineffective indigent management, the inability to properly maintain infrastructure for service delivery, and a serious lack of financial and management proficiency have added to the burden. Consumers who tap into the electricity and water grid illegally and the deficiency of existing credit control measures also exacerbate the cash-flow problems.

Local authorities are starting to realise that the reasons for non-delivery of services, as well as corruption and poor governance, are why they have reached a point where the situation has become almost unmanageable. Surely, the time is long past for acknowledging that ‘more-of-same’ does not provide any sustainable solutions, and that decisive action to find smarter solutions and innovative ways of overcoming financial ineptitude to improve cash flow is no longer debatable?

To my mind, the reasons for the current situation are less important than the failure within municipal structures to understand the link between revenue management and sustainable service delivery.

Revenue management, credit control and debt collection are integral to sustainable infrastructure development and infrastructure asset management. Frequent interaction with many municipalities has made it abundantly clear that those willing to focus on ‘thinking smarter’ to gain control over their own revenue generation, can stop the downwards cycle and start converting debt into infrastructure. Debt collection alone will not address these challenges.  A holistic revenue management approach must be followed for solutions to become sustainable.

Models for such corrective interventions exist. An example is the Bigen Africa municipal revenue management model, developed specifically for municipalities in South Africa. The differentiating factor is a focus on both revenue management and infrastructure development.

This approach is implemented through:

  • a revenue management software tool developed specifically for municipalities in South Africa.
  • working inside the municipality and ‘shoulder-to-shoulder’ with municipal staff.
  • training municipal staff and providing scholarships to
  • create capacity, enabling the municipality to continue with
  • the corrective implementation after the intervention comes to an end.
  • creating awareness in local communities through campaigns and regular meetings with ward councillors and other role players.
  • combining credit control, debt collection, legal, indigent management, query management and data cleansing activities into a single, well-managed operational process.

Tackling pervasive problems head-on can fast-track the overall improvement process and, if sustained, will result in long-term benefits. This includes:

  • preventing municipal debt growing in the first place.
  • instilling financial discipline with the requisite checks and balances.
  • ensuring that the right people with the right skills are deployed where they are most effective.
  • using the corrective intervention to transfer the skills required to sustain implementation.

Can municipalities afford such a ‘rescue’ package?

In effect, the interventions can be virtually cost-free. Commission is normally paid on revenue generated as a result of the implementation of the management model, such as improved cash flow and income from accounts in arrears.

The intervention process also helps municipalities to find sources of additional revenue, such as identifying the areas where they are providing services but not rendering accounts.

This has proven to be a significant source of additional income in a number of municipalities where the smart thinking approach has been implemented.  As I see it, the big picture is about ensuring that municipalities can deliver effectively against their mandates, in a sustained manner, supported by sound financial systems and efficient management. In the short-term, however, it is clear that the choices they make now, as individual authorities, will affect their future and the quality of life of civil society at large.

Results from the implementation of the BIGEN AFIRCA municipal revenue management model include:
  • increase in payment rates
  • reduction in outstanding debt
  • increase in credit worthiness
  • increase in number of municipal accounts rendered
  • policy changes to enable best practices
  • effective credit control
  • in-service training of municipal staff
  • confidence in the use of software tools to sustain implementation