Incidental credit agreement has implications for businesses
2007-11-15
BUSINESSES should familiarise themselves with the implications of incidental credit agreements as provided for in the National Credit Act .
There has been speculation as to how to handle debtors, especially in situations where amounts become overdue.
These situations fall under the definition “incidental credit”. Now we have more clarity on the implications of what the term “incidental credit” means
Businesses who are owed money by clients for services rendered, and wish to charge interest on such money owed, do not have to register as credit providers, as was feared. Such an agreement makes provision for the levying of interest or a fee on overdue amounts or an early settlement discount. According to the Act, parties to an incidental credit agreement are deemed to have made that agreement on the date that is 20 business days after the supplier first charges a late payment fee or interest; or a determined higher price for full settlement of the account first becomes applicable. Incidental credit agreements are exempt from the provisions of the Act dealing with pre-agreement disclosures, form and content of agreements, unlawful provisions in agreements and the risk of granting reckless credit.Furthermore, a Credit Provider who grants only “incidental credit” does not have to register as a credit provider in terms of the Act, having the effect that a lot of onerous terms and conditions of the Act are not applicable. Credit Providers must take cognisance of the fact that agreements which, at the date of conclusion, are not subject to the Act, may become subject to the Act at a later stage should the requirements relating to incidental credit agreements be met.
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