Do Your Credit Sales Fall Under the National Credit Act?

All your transactions with your customers, clients or patients are in simplistic terms either cash or credit transactions. Cash if the amount is settled upon delivery of the goods or service or the account is settled within a few days of delivery of the goods or service. If, however, after providing the goods or service an account is issued to the customer personally or either by mail or e-mail after which a month-end statement is rendered to the customer, then that transaction would be a credit transaction.

If a customer drives into your service station and purchases R300 of fuel then:

1. If the customer pays cash, then for the service station and the customer it is a cash sale.
2. If the customer pays with a garage/petrol card then again for the customer and the service station it is a cash transaction because the amount will be charged to the customer's current account within a day or two and the service station will receive payment from its bank service provider with 24 hours.
3. If the customer pays with a credit card then for the customer it is a credit transaction because the customer will receive a statement in due course upon which the full amount owing can be paid or it can be paid off over a number of months. For the service station the transaction is a cash transaction because it will be paid within 24 hours, but for the bank service provider the transaction is a credit transaction.

So what we are all concerned with here are all transactions where the goods or services provided to a customer, client or patient can be classified as a credit transaction.

In terms if the National Credit Act where goods or services are provided on credit and

1. Interest will be charged if the amount is not paid by a certain date or
2. A settlement discount is offered if the account is paid by a certain date.

Then that transaction is classified as an "Incidental Credit Transaction". Incidental Credit Transactions therefore fall under the National Credit Act but credit providers of Incidental Credit Transactions are exempt from the provisions relating to Pre-Agreement disclosures, the form and content of agreements, reckless credit and registering with the National Credit Bureau as a credit provider.

The consequences of the definition of an Incidental Credit Transaction means that if in the case of your credit transactions you do not levy an interest charge for amounts paid after a certain date and you do not offer your debtors a settlement discount, then those transactions do not fall under the National Credit Act.

Finally, certain types of organizations such as gyms, clubs or institutes make available to their members their services over a period of timer such as a year for which the members can pay their fees in one payment at the beginning of the year or they can pay monthly or quarterly in which case the monthly or quarterly fees paid will in total be more than the once-off payment. Such structured payments transactions are in terms of the National Credit Act "Discount Transactions" and must comply with the National Credit Act's provisions.

So how can such organizations modify their credit transactions so that they can be classified as Incidental Credit Transactions and consequently exempt from certain onerous National Credit Act provisions.

The organization can render an account at the start of the period or year in question, and at the end of each month-end issue a statement reflecting

1. How much of the original fee is outstanding and
2. The monthly interest charge on the outstanding balance at 2.0 percent. Such financial arrangement will now meet the requirements of an Incidental Credit Transaction.

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Established by Denis Jefferies in 1983, a professional accountant who holds a B.A. in Economics and Law and an M.B.A. (Cape Town), to date the CMD has trained more than 10 000 persons through public and in-house training programs.

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