Know your legal obligations when entering into a contract with your supplier/creditor.
We are often approached with queries and complaints by bad debtors as to why they are liable to pay interest and costs to their suppliers/creditors on being handed over as a result of breaching their payment terms to such suppliers/creditors.
It is a common yet incorrect belief that if they settle the outstanding capital amount only, that they will not be liable for any legal costs or interests that have been incurred as a result of them defaulting on their payments/payment terms to their suppliers/creditors.
It is important to remember that where a contract comes into play – debtors must be extremely aware of all the terms of the contract that they are signing as they cannot rely on ignorance of such terms when the clauses need to be actioned – usually due to a default in payment.
Whilst suppliers/creditors have a legal obligation to ensure that their contracts and credit agreements are compliant with the National Credit Act and the Consumer Protection Act, they are still within their rights to claim interest and costs on any outstanding amounts (on condition that the charges are within the legal rates).
Unfortunately, when cash flow is tight – all too often the customer utilises the supplier/creditor as a bank and tends to stretch out their repayment to them as much as possible until such time as the supplier/creditor institutes legal action or puts the account on hold.
In our experience, suppliers/creditors are extremely accommodating with customers when they experience cash flow problems and will only hand an account over for collection, levy interest and costs charges when numerous attempts at recovery of their money have been exhausted. But at this stage customers/debtors still believe that they only have to pay the capital amount back without any repercussion to themselves. Let’s remember that banks charge interest and costs in terms of their contracts, so why should it be any different for suppliers/creditors?
The procedures implemented by suppliers/creditors in practice often appear as though they are relaxing certain conditions and clauses of their contracts but the debtor must always be aware of their liability and they must be aware of the penalties that they are liable for, should they default on their payment terms with their supplier. If in doubt, know that it is the contract which will prevail and ignorance of what you have signed is no excuse.