How to Handle Bad Debt

1. How to Handle Bad Debt GreigWhitton Founder, Evergrow Antony Arvan Partner, Maurice Philips Wisenberg

2. Webinar outline • The National Credit Act • Pre-legal strategies • Legal strategies

3. The National Credit Act • When does it apply? • If you defer payments and charge interest and/or fees. • If you use discounts to incentivise prepayments.

4. The National Credit Act • When does it not apply? • Shareholder loans. • Informal loans between family members and friends. • Transactions between stokvel members. • Supplying state bodies. • Supplying juristic persons with an asset value or annual turnover exceeding R1m. • Credit agreements over R250,000 involving juristic persons.

5. The National Credit Act • What responsibilities do you have if it does apply? • May need to register as a credit provider.

6. The National Credit Act • What responsibilities do you have if it does apply? • May need to register as a credit provider. • Must assess ability of customers to settle debt and not extend credit recklessly.

7. The National Credit Act • What responsibilities do you have if it does apply? • May need to register as a credit provider. • Must assess ability of customers to settle debt and not extend credit recklessly. • Must not exceed permissible fees and interest rates.

8. The National Credit Act • What responsibilities do you have if it does apply? • May need to register as a credit provider. • Must assess ability of customers to settle debt and not extend credit recklessly. • Must not exceed permissible fees and interest rates. • Must ensure that all credit agreements comply with the Act.

9. The National Credit Act • What responsibilities do you have if it does apply? • May need to register as a credit provider. • Must assess ability of customers to settle debt and not extend credit recklessly. • Must not exceed permissible fees and interest rates. • Must ensure that all credit agreements comply with the Act. • Must maintain a record of all credit transactions.

10. Pre-legal strategies • Get the right mindset • You’re running a business, not a bank or a collection agency

11. Pre-legal strategies • Get the right mindset • You’re running a business, not a bank or a collection agency • Credit is a privilege, not a right

12. Pre-legal strategies • Get the right mindset • You’re running a business, not a bank or a collection agency • Credit is a privilege, not a right • Customers aren’t automatically entitled to a credit account, they need to earn it

13. Pre-legal strategies • Get the right mindset • You’re running a business, not a bank or a collection agency • Credit is a privilege, not a right • Customers aren’t automatically entitled to a credit account, they need to earn it • Someone who owes you money is a debtor, not a customer

14. Pre-legal strategies • Get the right mindset • You’re running a business, not a bank or a collection agency • Credit is a privilege, not a right • Customers aren’t automatically entitled to a credit account, they need to earn it • Someone who owes you money is a debtor, not a customer • Making money trumps making sales

15. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms

16. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms • Offer and incentivise alternative payment options

17. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms • Offer and incentivise alternative payment options • Prepare a robust credit policy

18. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms • Offer and incentivise alternative payment options • Prepare a robust credit policy • Escalate qualifying criteria for larger credit accounts

19. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms • Offer and incentivise alternative payment options • Prepare a robust credit policy • Escalate qualifying criteria for larger credit accounts • Complete thorough credit worthiness assessments

20. Pre-legal strategies • Do the right preparation • Create more value to justify more favourable payment terms • Offer and incentivise alternative payment options • Prepare a robust credit policy • Escalate qualifying criteria for larger credit accounts • Complete thorough credit worthiness assessments • Monitor debtors vigilantly for signs of financial distress

21. Legal strategies • Document credit agreements thoroughly • Reduce the risk of defaults and disagreements • May be mandatory should the NCA apply • Provides leverage in the event of legal action

22. Legal strategies • Insist on personal suretyships • Can deter bad debtors • Provides leverage in the event of legal action

23. Legal strategies • Issue letters of demand • Many debtors will pay up when threatened with legal action • Contract a reputable attorney

24. Legal strategies • Take legal action when: • The debt is over R5,000 • Your debtor is unlikely to dig in their heels • Your debtor can actually pay what they owe

25. Need more help? • Evergrow forums • Guides • Greig: 021 671 8225 • Antony: 021 419 7115