Late payment is the quiet cash flow killer for South African small businesses. The work is done, the invoice has gone out, and 30 days turns into 60, then 90. Most owners chase with a polite email, then another, and never charge a cent of the interest the law already entitles them to. This week we launched a free tool built to change that: the Late Payment & Debt Recovery Toolkit. Here is the law it runs on, and how to use it.
You can charge interest even if your contract says nothing about it
When a customer fails to pay a fixed amount on the date it was due, interest starts to run from that date. If your contract sets its own interest rate, that rate applies. If it does not, the Prescribed Rate of Interest Act fills the gap. The prescribed rate is tied to the Reserve Bank’s repo rate: repo plus 3.5 percentage points.
The prescribed rate has been 10.50% since 1 July 2026. On 23 September the Reserve Bank’s Monetary Policy Committee raised the repo rate to 7.25%, and the Act says a new rate takes effect on the first day of the second month after the repo decision. That makes it 10.75% from 1 November 2026.
One detail catches people out. The rate that applies to a debt is generally the rate in force on the day interest started running, not whatever the rate is today. An invoice that fell due in August keeps accruing at 10.50% even after November. The toolkit keeps a dated table of every rate change and picks the right one for each invoice automatically.
Three rules that decide what you can actually claim
Interest is simple, not compound. It is calculated on the capital owed over a 365-day year. You cannot charge interest on interest unless an agreement allows it.
Part payments go to interest first. Under the common law, when a customer pays part of what is owed, the payment reduces the interest that has built up before it reduces the capital. That changes the total more than most people expect on a long-running debt.
The in duplum rule caps it. Interest stops accruing once the unpaid interest equals the capital still outstanding. It does not wipe out interest already earned; it stops more piling up. The toolkit applies the cap invoice by invoice and tells you when a debt has hit it.
The three year clock
Under the Prescription Act, most ordinary debts prescribe after three years. Once that happens, the debt is effectively gone: you can no longer enforce it in court. The clock runs from when the debt fell due, but a part payment or a written acknowledgement of the debt interrupts it and starts it again. That is one reason the toolkit includes an acknowledgement of debt: getting a customer to sign one resets prescription and gives you a clean document to rely on later. The tool shows the prescription date for each invoice, so an old debt does not slip past you.
Which route fits your debt
The right next step depends on the amount, who you are, and who owes you.
- Small Claims Court handles claims up to R30,000 from 1 August 2026, without lawyers. The catch that many businesses miss: only natural persons can bring a claim. A company or close corporation can be sued there but cannot sue. A sole proprietor can. Before you file, you must give the debtor a written letter of demand allowing 14 days to pay, delivered by hand or by registered post. The Department of Justice’s Small Claims Court page explains the process.
- Magistrates’ courts hear claims up to R200,000 in the district court and up to R400,000 in the regional court. Most business debts that are too big for small claims, or owed to a company, go here.
- Government debtors are a separate case. National and provincial departments are required by Treasury Regulation 8.2.3 to pay suppliers within 30 days of receiving an invoice, and the Municipal Finance Management Act sets the same 30 days for municipalities. A letter that cites those rules and goes to the accounting officer, not just the official who placed the order, tends to move faster than a generic demand.
The toolkit reads the amount, whether you are an individual or a company, and whether the debtor is a state body, and recommends the route and the document to send next. It also flags when you are about to send a Small Claims Court letter as a company, which is the most common mistake it guards against.
How the toolkit works
It takes about five minutes, in four steps. First, who is involved: your business and your customer. Second, the unpaid invoices, with amounts, dates and any part payments. You can type them in or paste a list from a spreadsheet. Third, your claim: capital, interest to the day, the daily amount it grows by, and the route that fits. Fourth, the documents.
There are seven, in the order you would normally send them: a friendly payment reminder, an overdue notice, a letter of demand, a Small Claims Court letter of demand, a letter to a government debtor, a statement of account showing interest posted line by line, and an acknowledgement of debt. Each one exports as a PDF or a Word document, prints, or copies as plain text for email or WhatsApp.
Your figures stay in your browser. Nothing you type about your customers is uploaded to our servers.
Why this matters now
Late payment is a structural problem for South African SMEs, not a personal failing of the owners chasing it. Government departments routinely miss the 30-day rule, and the office created to help small suppliers recover what big customers owe them still has no one running it. Until that changes, the tools a small business has are its paperwork and the law. A clear letter that states the amount, the interest, the legal basis and a deadline gets paid far more often than a fourth polite reminder.
The toolkit is not legal advice, and a document headed for court should be checked by an attorney first. But for the everyday job of working out what you are owed and asking for it properly, it does in five minutes what used to take an afternoon. Try the Late Payment & Debt Recovery Toolkit, or browse our other free business tools.
