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Credit control is the management of money owed to the business by customers. Poorly managed debtors are a hidden tax on cash flow — revenue recognised but not collected is revenue that cannot be spent. Effective credit control reduces DSO, improves cash flow, and reduces bad debts.
Before extending credit to any customer:
- Request bank references for significant credit limits - Check payment history from trade references - Review publicly available financial information for larger accounts - Use a credit bureau (TransUnion, Experian, Compuscan in South Africa) for high-risk or high-value customers
For any customer with credit terms, a signed credit application on file:
Set a credit limit per customer. The credit limit is the maximum outstanding balance permitted before supply is put on hold.
Review credit limits annually or after a significant event (large new order, customer financial distress signals).
A systematic, escalating collections process. The key is consistency — every customer is treated the same way, every time.
Send a statement 7 days before the due date listing all invoices due. This removes the "I didn't receive the invoice" excuse and creates an opportunity for the customer to flag disputes early.
Confirm payment received. If not received, send a polite reminder:
"Our records show invoice [number] for R[amount] was due today. Please confirm payment has been made or advise the expected date."
Telephone follow-up. Email is easy to ignore. A phone call establishes contact, identifies disputes, and signals that you are attentive.
Second follow-up call. Escalate to your contact's senior if the first contact is unresponsive.
Formal written notice. Advise that supply will be placed on hold and late payment interest will be applied if not received within 7 days.
Place account on hold. No further supply until account is brought current. This is the single most effective lever — customers who need your product or service will pay.
Escalate to management. Options:
Write off as a bad debt (with VAT relief claim — Section 22(3) of VAT Act) after:
Run weekly. Categories:
| Bucket | Action |
|---|---|
| Current (not yet due) | Monitor |
| 1–30 days overdue | Reminder call/email |
| 31–60 days overdue | Account at risk — escalate |
| 61–90 days overdue | On hold — formal demand |
| 90+ days overdue | Collections / legal |
Review the top 10 debtors by value at every management accounts meeting.
The National Credit Act 34 of 2005 prescribes maximum interest rates for credit agreements with consumers. For B2B (business-to-business) transactions, contractual interest rates are generally governed by the contract.
Include in your terms and conditions:
Under Section 22(3) of the VAT Act, a vendor who has previously declared output VAT on a supply may claim a deduction (bad debt relief) if:
The adjustment is made in the VAT period in which the debt is written off. The amount of the deduction is the VAT portion of the outstanding amount (15/115 of the outstanding balance).
If the debt is subsequently recovered, output VAT must be declared again in the period of recovery.