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How to Handle Bad Debt

How to Handle Bad Debt. Greig Whitton Founder, Evergrow. Antony Arvan Partner, Maurice Philips Wisenberg. Webinar outline. The National Credit Act Pre-legal strategies Legal strategies. The National Credit Act. When does it apply?

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How to Handle Bad Debt

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  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

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