The Legal Risks of Allowing Your Customers to Fall Behind on Payments

Marelise Powell
5 days ago
3 min read

Late payment is one of the most common challenges faced by South African businesses. Many creditors hesitate to act early, hoping that customers will “catch up” on their own. Unfortunately, allowing accounts to fall too far behind carries serious legal and financial risks that can permanently affect recoverability.

This article explains why delay is dangerous, what the law says, and how businesses can protect themselves before it is too late.

1. Risk #1: Prescription of Debt

One of the biggest legal risks of delayed action is prescription.

In terms of the Prescription Act, most unsecured debts prescribe after three years if:

No payment is made
No written or verbal acknowledgment of debt is given
No summons is issued

Once a debt prescribes, it becomes legally unenforceable, regardless of how valid the claim may have been.

2. Risk #2: Loss of Evidence and Documentation

As time passes, businesses often lose:

Signed contracts
Proof of delivery
Invoices and statements
Email correspondence
Records of payment history

Without proper documentation, even a valid claim may fail in court. Early legal intervention helps preserve evidence and strengthens enforceability.

3. Risk #3: Reduced Settlement Leverage

Debtors are far more likely to engage when:

The arrears are still manageable
The debt feels urgent
Legal consequences are clearly communicated

When accounts fall severely behind:

Debtors disengage
Contact details change
Employment is lost
Willingness to settle decreases

The longer a creditor waits, the less leverage remains.

4. Risk #4: Difficulty Tracing the Debtor

Delayed collection increases the risk that the debtor:

Changes employment
Relocates
Becomes untraceable
Emigrates
Becomes insolvent

Once a debtor disappears, recovery becomes expensive and uncertain. Early engagement significantly improves traceability.

5. Risk #5: Insolvency and Business Rescue

If a debtor enters:

Sequestration
Liquidation
Business rescue

the creditor’s rights are restricted and claims must be lodged formally. Unsecured creditors often receive only a fraction of what is owed or nothing at all.

Acting early may allow recovery before insolvency proceedings begin.

6. Risk #6: Increased Legal Costs

Allowing arrears to escalate often leads to:

Larger balances
More complex litigation
Longer court processes
Higher enforcement costs

Early action often resolves matters through pre-legal collections, avoiding unnecessary litigation expenses.

7. Risk #7: Cash Flow and Operational Strain

From a legal and commercial perspective, slow-paying customers can:

Disrupt cash flow
Limit growth
Affect staff salaries and supplier payments
Increase reliance on credit facilities

Consistent enforcement of payment terms is not aggressive, it is good governance.

8. Risk #8: Setting the Wrong Precedent

When customers learn that late payment has no consequences, it:

Encourages further defaults
Undermines contract enforcement
Creates a culture of non-compliance

Swift, professional action sends a clear message that payment terms matter.

9. How Businesses Can Reduce These Legal Risks

To protect themselves, businesses should:

✔ Enforce payment terms consistently

✔ Act within the first 30–60 days of default

✔ Keep accurate contracts and records

✔ Monitor prescription timelines

✔ Use legally compliant call centres

✔ Involve attorneys early

Early legal engagement does not mean immediate litigation, it means protecting your rights.

Final Thoughts

Allowing customers to fall behind on payments is not just a financial risk, it is a legal risk that can permanently limit recovery.

The earlier a business acts, the more options it has. Proactive, legally compliant debt recovery protects cash flow, preserves rights, and strengthens long-term sustainability.

If your business is dealing with overdue accounts, our team can assist with professional, ethical, and effective debt recovery.