Writing off bad debt

Writing off bad debt can be very upsetting. You are owed the money, the services were rendered. Why must I write off bad debt? Here’s what the law says on the topic.

Let’s first look at prescription

What does it mean?

Prescribed debt is old debt that has been written off by credit providers. What does it mean when debt is written off? While there are ways for creditors to still claim this debt, the amendments to the National Credit Act in March 2015 make it almost impossible for debt collectors to get back this expired debt.

Prescription is when an account is more than 3 years old. Meaning the last invoice was 3 years ago. If the last payment was also 3 years or more ago, this account is prescribed and you are no longer allowed to claim this from your debtor, which ultimately means it must be written off.

When an account becomes due and the debtor doesn’t pay, you have 3 years to institute action in form of a summons, if you didn’t pursue this matter it will prescribe, however, if action was instituted the claim does not prescribe or expire. If a judgement is granted against the debtor, this will be on their record for 30 years.

Prescription can also be interrupted, and the 3 years will restart. For example, if a payment is made on the account, the 3-year period will restart. It will also be interrupted in some instances.

1. You acknowledge the debt, or make payment on the debt
2. The creditor takes legal action against you
3. You are residing outside of South Africa
4. You are married to, or business partners with, the credit provider

The following types of debt are likely to take an extended period of time to prescribe:

1. Judgement debt only prescribes after 30 years
2. Mortgage/Home loan debt
3. Debts owed to the state/municipality. E.g. Tax, Municipal Debt, TV licenses

The purpose of prescription in South Africa is to compel creditors and collections agents to collect money owed to them within specified period and not delay recovery so that it accumulates massive amounts of interest and costs.

So, if you feel like your debtors are starting to prolong payment, you keep getting excuses and you feel this account is too long overdue- hand it over so you don’t stand the risk of losing the claim completely.