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NCA Slows Down Debt Collection

13 November 2007 Coface

Businesses are using the National Credit Act (NCA) to stall payments to creditors although the Act excludes credit agreements concluded with most companies, close corporations, partnerships and trusts.

International credit insurer Coface says companies are stalling payments, claiming that “proper” procedures were not followed when providing credit and claiming outstanding amounts.

“The NCA does not apply to most of these companies, it is largely aimed at consumers and companies with turnover of under R 1-million a year,” says Coface Senior Manager Operations Jacqui Jooste.

“Some companies are stalling the normal debt collection process by weeks claiming NCA protection,” she says.

“Although no legal precedent has yet been set in terms of the legislation, some companies are taking advantage of what is a relatively new Act, and are causing confusion.”

Jooste says the overall effect could be an increase in the level of bad debts, a slow down in debtor payments, stifle cash flow, and have an overall negative effect on the economy. What companies are doing could also negatively effect underwriting decisions.

The financial sector appears to be nervous about the NCA and banks are slower to provide credit information.

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