What is a credit facility?
Credit facilities are institutions, such as a bank, who provide credit services to individuals, companies, and institutions. These credit services include, but are not limited to, borrowing money to borrowers on an ongoing basis and over a long period of time. This type of credit service is beneficial as you, as the borrower, do not have to keep re-applying for a loan every time you lack capital.
What is an incidental credit agreement?
The National Credit Act 34 of 2005 defines an incidental credit agreement as: “an agreement for the provision of goods or services over a period of time in terms of which agreement a fee, charge or interest becomes payable if the amount charged isn’t paid before a certain date or a lower price applies if the account is paid before a certain date after which a higher price applies”.
But when will this type of agreement become effective?
An incidental credit agreement is deemed to be concluded 20 business days after the date on which the first late-payment interest was charged. To explain this concept by way of example you, as service provider, send out an account for services rendered which stipulates that the account is payable by 23 October 2022, should this account not be paid by such date interest will be levied against the outstanding amount. The customer, defaults on his payment and the service provider charges interest on the outstanding amount from 24 October 2022. Twenty business days after 24 October 2022 they are deemed to have concluded an incidental credit agreement. As such, the date of conclusion of the incidental credit agreement is 21 November 2022, as the Act determines that the first date on which interest is charged is excluded from the calculation.
In conclusion
Institutions, such as yourself, that are not registered as Credit facilities are still entitled to charge interest on overdue accounts. It is also not necessary that you have a prior agreement with your customers concerning interest on overdue accounts. If the customer has not agreed to pay interest on overdue accounts, then the supplier issuing the invoice can only recover interest at the nominal rates prescribed by the law, which currently stands at 2% per month.
Therefore, there is no danger in charging interest on your overdue accounts as it is completely legal. Just make sure that your interest rate never exceeds the prescribed nominal rates and be aware of the in duplum rule, which means that interest on debt stops accruing once it has reached an amount equal to the outstanding debt.
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