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Cash Flow

The Legal Side of Debts

The concept of prescription and how it relates to cash flow: Some practical tips for business owners.

Nicolene Schoeman-Louw



Business Cash Flow

The concept of prescription – where a debt – ‘an amount legally owing’ expires or ceases to exist can be a valuable legal defence for a debtor to raise and an equally valuable motivation for creditors / plaintiffs to timeously collect their outstanding debts alternatively to know the risks involved and their legal rights. This is specifically relevant in respect of cash flow and related issues in a business.

The abovementioned concept is regulated by the Prescription Act 68 of 1969, which provides (in section 10(1)) that a debt (and in this context a debt has a very wide meaning in that it essentially means a claim in law – see below), expires or ceases to exist by way of prescription within a set  amount of time.

These provisions simply exist in order to create legal certainty. It is in the interest of justice and fairness that a legal claim does not exist for an indefinite period of time. This is especially when for example documents relating to the matter may have gone missing and witnesses who would have testified may have died or become untraceable

Accordingly, aside from some special prescriptive periods for debts secured by mortgages, judgments, and tax debts, the general prescriptive period is three years from the date that the debt became legally due. This needs to be observed by all business owners when considering whether to enforce any legal claim as collecting amounts legally owing is vital to the cash flow of any business.

The definition of ‘debt’ for prescription

Bester NNO and others NNO v Schmidt Bou Ontwikkelings CC (696/11) [2012] ZASCA 125. The question raised in this case was whether the rectification of a deed of transfer qualifies as a debt for the purposes of prescription.

The facts of the case are briefly as follows:

The seller was the owner of a large Erf in Sedgefield. In 2003 the Erf was subdivided and a portion sold. The parties intended that the purchaser would become the owner of a portion sold only and that the seller would retain ownership of the remainder.

However, the remainder was erroneously transferred along with the portion sold. Years later the seller applied for rectification of the deed of transfer to reflect it as the owner of the remainder. The purchaser contended that the seller’s claim had become extinguished by prescription because the applicable three year prescription period has expired.

The court held that since the deed of transfer did not reflect the correct state of affairs, rectification of the deed would not constitute re-delivery of the property, symbolic or otherwise. Rectification does not have the effect of changing the rights and duties of the parties, but merely constituted a formality / administrative measure to correct the true state of affairs on paper.

Accordingly this case illustrates that to the contrary of the transfer in question only a legally enforceable right will dictate the application of the Prescription Act. It is important to understand these concepts accurately in order to avoid incurring unnecessary costs or wasting time, either of which could easily cripple any business.

General principles

The Act also provides (in section 15(1)) that prescription may be interrupted. The act is very clear in this regard it is only interrupted when legal process is issued, this however does not entail only the issuance of a letter of demand, but in fact a summons should be issued and served or another appropriate Court process if applicable.

The question often arises when a creditor does issue for example a summons but once it has been served fails to take further steps, how does this affect prescription?
This was one of the issues facing the Supreme Court of Appeal in Cadac (Pty) Ltd v Weber-Stephen Products Co 2011 (3) SA 570 (SCA).

“… the interruption of prescription [by service of a summons] shall lapse, and the running of prescription shall not be deemed to have been interrupted, if the creditor does not successfully prosecute his claim under the process in question to final judgment … “

Arguably according to some colleagues this provision could have been interpreted to mean that where a summons lapses prescription continues to run as if no summons was served. However, the court ruled to the contrary that the service of a summons interrupts the running of prescription, and prescription does not resume running if the creditor takes no further action.

However, in terms of the rules of court a summons lapses and accordingly a debtor may compel a creditor to adhere to these rules even where prescription does not run as set out above.


It is important to accurately understand the concept of prescription and to consider these when bringing a legal claim. Creditors need to observe this before instituting a claim against a debtor and debtors need to observe this when they are facing claims with a long history. Effective planning and monitoring outstanding claims is vital to healthy cash flow in any business.

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit for more information or email


Cash Flow

The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts

If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.






At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.

Related: Hiring Your First Employee? 5 Things You Need To Know

It is safe and secure

Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.

You can even pay yourself

We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better. 

Related: How Salary Transparency Empowers Employees – And When Not To Use It


Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.

Absa Business Banking 

Do better business. Prosper.

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Cash Flow

Entrepreneurial Balancing Acts with Debt

Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders.

Harald Merckel




Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders. Unfortunately, many South African entrepreneurs are limited in their ability to access capital markets. Among others, the major challenges facing entrepreneurs include lack of credit history, no collateral, shaky credentials, and unformulated business plans.

Regardless, SA entrepreneurs are forging ahead and using multiple resources at their disposal such as payday loan providers, non-bank lenders, family and friends, crowdfunding and other economic empowerment initiatives to raise the necessary seed capital for investment purposes. Given the staggering unemployment rate in the country (+25%), the only way out for many people appears to be entrepreneurship. The 2008 global financial crisis threw the economy for a loop, and now the hopes and dreams of many South Africans hang in the balance.

Related: Every Tough Choice Has Management Debt – Are You Accounting For Yours?

ISM Study Sheds Light on SA Entrepreneurial Pros and Cons

An intensive study conducted by the University of Cape Town’s Unilever Institute of Strategic Marketing (ISM) found that the country is experiencing ‘a crisis of aspiration’. Simply put, many South Africans are struggling to attain their career objectives in an economy that has been ravaged by corruption, mismanagement, and scandal. Despite tough economic times, South African entrepreneurs are determined to try their luck. Pressing challenges in the form of rising unemployment, and an economy mired in failure are challenging entrepreneurs to be more inventive than ever before. The most volatile component of the economic spectrum in South Africa is the middle class.

Many South African families have lived the high life, or ascended the rungs and then been knocked down a peg. This instability is creating added volatility in a country where high crime, mismanagement and political rancour pepper the scene. For many entrepreneurs, any access to credit is a godsend. Banks and non-bank providers offering personal loans, business loans, or credit card funds invariably expose themselves to debt default. For entrepreneurs, it’s important to know where to draw the line. Access to lines of credit in a crippled economy is significantly more valuable than the equivalent access in a developed economy.

How to Know when you are Overstretched as an Entrepreneur

Debt is considered a prerequisite for investment purposes. Most South Africans simply don’t have the necessary capital to start up a high-tech venture, fund a new business, or conduct marketing and advertising activity. As such, lines of credit are increasingly being used to propel business activity among SMEs – both in the formal and the informal sector. However, once debt reaches untenable levels, the tough questions need to be asked. For example, if multiple loans and multiple payments are required monthly, revenue streams need to be evaluated against expenses to gauge whether this is a feasible status quo.

Related: How To Handle Your Post-Holiday Debt

Many entrepreneurs find it difficult to manage multiple loans simultaneously, although it is necessary to acquire the capital from multiple sources. One of the ways to deal with these types of exigencies is a single loan from a low-cost lender in the form of debt consolidation loans. Simply put, these loans are provided by bank or non-bank lenders at lower interest rates than the prevailing interest rate on other lines of credit. By taking out a debt consolidation loan, the entrepreneur has more disposable income over time by not paying the higher interest on credit card debt.

Escape Debt Before Debt Consumes You

There are several other ways to know when your personal financial situation has reached critical mass. For starters, the nature of your business may require you to continue dipping into lines of credit to maintain business operations. If you don’t have the requisite discipline to stop indebting yourself, you may not be able to get out of debt. Debt consolidation is only effective insofar as you have the necessary discipline to put an end to debt financing of all business-related activity.

Credit should be used sparingly, and profits should be generated to allow your business to prosper. In a tight economic climate, costs are the bugbear that need to be attacked. Lavish trappings are unnecessary for business functionality – modest budgets, and high-quality goods and services are far more effective than window dressing at a premium.

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Cash Flow

How South Africa’s Small Businesses Plan To Invest Their Money In 2018

Here are their five areas they should focus their attention on in the next year and beyond.




Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.

Here are their five areas they should focus their attention on in the next year and beyond.


When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.

They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.

Related: What To Consider When Investing Your (Hard-Earned) Money


Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.

The right investment in this area can give a business a real competitive advantage.

It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.

Product development

Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.



Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.

Related: How To Make Money Investing, According To Ashton Kutcher

This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.

Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.

Customer service

The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.

Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.

All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.

Related: 12 Millionaire Habits To Start Making Serious Money Soon And Build Wealth In A Hurry

It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.

The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.

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