Can I charge interest on late payments in South Africa?

Yes, you can charge interest on late payments if it's stated in your payment terms. The Prescribed Rate of Interest in SA is currently 7.5% per annum. You can specify a different rate in your contract.

How long should I wait before sending a reminder?

Send a friendly reminder 1-3 days after the due date. Follow up with a firmer reminder at 7 days, and escalate to a formal demand at 14-21 days overdue.

When should I hand over debt to collections?

Consider collections after 60-90 days if the customer is unresponsive. Weigh the debt amount against collection fees (typically 15-25% of the amount recovered).

How to Handle Late Paying Customers

Late payments are a major challenge for South African small businesses. Studies show 60% of invoices are paid late, causing cash flow problems and wasted time on collections.

The Cost of Late Payments

Cash flow strain - Can't pay your own bills

Time wasted - Hours spent chasing payments

Stress - Worry about meeting obligations

Relationship damage - Awkward conversations

Business risk - May need to borrow

Prevention: Before You Invoice

1. Clear Payment Terms

State clearly on every invoice:

Due date (specific date, not "30 days")

Accepted payment methods

Late payment penalties

Early payment discounts (optional)

2. Credit Checks

For large orders or new customers:

Request references

Start with smaller orders

Consider deposits

3. Deposits & Progress Payments

Request 50% upfront

Bill at milestones

Retain final payment until delivery

4. Written Agreements

Formal contracts for services

Clear scope and payment schedule

Signed before work begins

Reminder Timeline

Day 1-3: Friendly Reminder

"Hi [Name], just a friendly reminder that invoice #123 for R5,000 was due on [date]. Please arrange payment at your earliest convenience."

Day 7: Second Reminder

"This is a follow-up regarding invoice #123, now 7 days overdue. Please confirm when payment will be made."

Day 14: Formal Notice

"Invoice #123 is now 14 days overdue. Please make payment within 7 days to avoid late payment interest of [X]%."

Day 21+: Final Demand

"FINAL NOTICE: Invoice #123 for R5,000 is seriously overdue. Payment is required within 5 days or we will take further action."

Charging Interest

Legal Framework

You can charge interest if:

It's in your terms & conditions

The customer agreed to terms

The rate is reasonable

Prescribed Rate

Current SA rate: 7.5% per annum

Calculate: Amount × Rate × (Days/365)

Example

R10,000 invoice, 30 days late at 7.5%: R10,000 × 0.075 × (30/365) = R61.64

Escalation Options

1. Phone Call

Sometimes more effective than email

Document the conversation

Confirm agreements in writing

2. Payment Plan

Offer structured payments

Get it in writing

Set clear dates and amounts

3. Letter of Demand

Formal legal letter

14-day notice

Warning of legal action

4. Debt Collection Agency

Usually 15-25% fee

They handle everything

Consider for larger amounts

5. Small Claims Court

Claims up to R20,000

No lawyer needed

Filing fee: ~R100

6. Magistrate's Court

Claims up to R400,000

May need legal assistance

More formal process

LEDGA Late Payment Tools

LEDGA helps you get paid faster:

Automated reminders - Set it and forget it

Payment tracking - See who owes what

Aged receivables report - Identify problem accounts

Payment links - Easy online payment

Professional invoices - Clear terms displayed

Customer portal - Customers see their balance

How to Handle Late Paying Customers in South Africa