This is the third article in a serious on Credit and how the Credit Bureau and the National Credit Act (the NCA) has changed the way we transact our credit lives. In this issue we consider the influence of the NCA and our business and ask the question “Is my business providing credit?”
With the introduction of the National Credit Act in June 2006 many large corporate Credit Providers scuttled to ensure their compliance to the Act, which in most instances necessitated registration with the National Credit Regulator. When the dust started to settle, little if any attention was given to the small/medium enterprises and the impact, the Act would have on the simple day to day business. It was left to the Small Business owner to educate himself, and when considering the complexities and intricacies of the Act, was and is no simple task. In most instances many small business just continued doing business in the same manner with little if any consideration of how the Act could affect the business being conducted. Only when accounts started to go unpaid did we realise that collecting these accounts is no longer as simple as before.
Many businesses had a common, but incorrect perception that “Because my business does not give credit” or “Because all my accounts are paid within thirty days” that therefore “The NCA does not apply to my business” and the NCA was simply not considered as important. The reason why the Act can never be ignored is because every transaction where goods and/or services are delivered and the client’s payment is deferred, usually for thirty days, is because such transactions are potentially Credit Transactions or as Incidental Credit Agreements, both of which are regulated by the NCA.
It is especially in those instances where your client does not pay immediately or is invoiced on a month to month bases is when the NCA serves to regulate the relationship between you and your customer. The Act also further regulates the way in which accounts can be collected and the specific rights, duties and obligations of the parties to such an Agreement.
This form of credit agreement is created when an account is tendered for payment for goods and/or service, that have been provided to the customer once off, or over a period of time, and one or both of the of the following conditions apply:
- if the account is not paid in full before a certain date an extra charge, fee or interest is added to the account; and/or
- where two prices are quoted, a lower price if the account is paid before a certain date and a higher price if the account is paid thereafter.
If this is the case your business is defined as a Credit Provider and all transactions and business conducted in this manner fall squarely within the regulations of the NCA.
It must be noted that in terms of Section 5(2) of the NCA this type of agreement is considered, to only come into existence, 20 business days after your business has first levied the extra charge, fee or interest to that account, which is also usually the time when it comes to your attention the account has not been paid or remains outstanding.
A practice which has become more common is that when collecting an unpaid account the Credit Provider forgoes the interest on the account in an attempt to sidestep the provisions of the NCA. However when considering that most litigation can take up to two years to conclude and that a pre-agreed interest on unpaid accounts can exceed, even whilst being regulated by the NCA, the 15.5% on capital, as claimed at Summons, the financial calculation is simple and should by duly considered. Credit Agreements are enforceable and should not be done away with, as an effective business tool, simply because of the provisions of the NCA.
The NCA also goes a long way to protect your business in an instance where Incidental Credit Agreement is concluded. For example, an Incidental Credit Agreement is, amongst others, exempted from certain provisions in the Act which deals with the following:
- reckless credit;
- unlawful provisions in agreements;
- pre-agreement representations;
- credit provider registration requirements;
- surrender of goods;
- cooling-off rights;
- dispute settlement procedures;
- marketing practices;
- agreement form and content.
The NCA is just another stepping stone that needs to be carefully considered and managed to ensure a reduction of business risk and that all business opportunities are taken full advantage of and should not be feared.
RMI4Law members can contact the legal advice and assistance line for any further information regarding the topic discussed, on 0861 668 677. Contributed by: Wesley Watson LLB (UNISA), Barnard Incorporated Attorneys