How to recover a debt from a customer who will not pay

Start with a written demand. Most unpaid invoices are paid after a firm, correctly addressed letter of demand that gives a deadline and states what happens next. If that fails, you sue: in the Small Claims Court if you are a natural person and the amount is within the limit, or in the Magistrates' Court if you trade through a company or the amount is higher. If the customer does not defend, you get default judgment and the sheriff can attach and sell their goods, or a court can order deductions from their salary.

Two rules shape everything. First, most debts prescribe three years after they fall due, unless the customer acknowledges the debt or you serve summons in time. After that, the debt is unenforceable. Second, the customer's ability to pay matters more than your right to be paid. A judgment against someone with nothing is a piece of paper.

Step 1: Check the debt is still alive

The Prescription Act 68 of 1969 provides that an ordinary debt prescribes three years from the date it became due, which is usually the invoice due date rather than the invoice date. Prescription is interrupted by the debtor acknowledging the debt, in writing or by conduct such as a part payment, or by you serving summons. When it is interrupted, the three years start again.

Before you do anything else, check the due date of the oldest unpaid invoice with the prescription checker. If you are close to three years, getting a written acknowledgement or issuing summons is urgent.

Step 2: Get your paperwork in order

You need to prove three things: that a contract existed, that you performed, and that the customer did not pay. Gather the quote and acceptance, your standard terms if the customer agreed to them, delivery notes or completion sign-offs, the invoices, your statement of account, and every reminder you sent with any replies.

If you have no written contract, collect the messages, the emails, and proof that the customer received the goods or services. Read what should be in a basic supplier or service contract for how to avoid this next time.

Step 3: Send a letter of demand

A letter of demand is a formal letter stating what is owed, why, by when it must be paid, and what will happen if it is not. Address it to the correct legal entity at its registered or physical address, and send it by email plus registered post or hand delivery so you can prove receipt.

Keep it short and factual. State the invoice numbers, dates and amounts, the interest you are claiming if your contract provides for it, and a deadline of seven to fourteen days. Say that if payment is not received you will issue summons without further notice and claim costs. Do not threaten anything you will not do, and do not make threats that are unlawful, such as listing the customer with a credit bureau without following the rules for doing so.

Many attorneys will send a letter of demand on their letterhead for a modest fixed fee. Customers who ignore you will often pay when a firm's name appears. See what a small business attorney costs.

Step 4: Choose your court

If you are a natural person, meaning you trade in your own name as a sole proprietor, and the amount is within the current limit, the Small Claims Court is designed for you. No attorneys appear, the fees are minimal, and the commissioner runs the hearing informally. Check the limit and the process with the Small Claims Court calculator. The Small Claims Courts Act 61 of 1984 does not allow a company or close corporation to sue there, so if your business is a Pty Ltd the route is closed to you even for small amounts.

If you trade through a company or close corporation, or the amount is above the Small Claims limit, you sue in the Magistrates' Court. The district court and the regional court each have their own monetary jurisdiction, which changes from time to time. Most businesses instruct an attorney because the rules are technical and a defective summons is thrown out.

Step 5: Summons, judgment and execution

Your attorney issues a summons, which the sheriff serves on the customer. The customer has a short period to file a notice of intention to defend.

If the customer does nothing, you apply for default judgment. The clerk or the magistrate grants it on the papers without a hearing. You now have a judgment for the debt, interest and costs.

If the customer defends, the case proceeds through pleadings and, if it does not settle, to trial. This is where costs and time escalate. A defended claim for a modest sum can cost more than the debt.

Execution. A judgment does not pay itself. The usual tools are a warrant of execution, under which the sheriff attaches the customer's movable goods and sells them at auction, and an emoluments attachment order, granted by a court, which directs the customer's employer to deduct instalments from salary. A court can also call the debtor to a financial inquiry and order payment in instalments. Each step carries sheriff's fees, which are recoverable from the debtor in theory and often not in practice.

A worked example: Bhekisisa Catering (Pty) Ltd

This example is illustrative only.

Bhekisisa caters a corporate function for R62 000. The client, an events company, pays the R20 000 deposit and never pays the R42 000 balance.

Because Bhekisisa is a company, the Small Claims Court is not available. The owner instructs an attorney, who sends a letter of demand for R1 500 giving ten days. Silence. The attorney issues summons in the district court. The sheriff serves it at the registered office. No defence is entered, and default judgment is granted seven weeks after summons.

The sheriff attends at the events company's premises and finds leased furniture and two vehicles under finance, none of which can be sold. The owner obtains a financial inquiry and the events company agrees to R5 000 a month. Bhekisisa recovers the full R42 000 plus some costs over about ten months, having spent roughly R14 000 in legal and sheriff's fees.

If the client had been an individual earning a salary, an emoluments attachment order would have been the tool. If the client had been liquidated, Bhekisisa would have proved a claim and received cents in the rand, if anything. And if the deposit had been half rather than a third, the exposure would have been R31 000 rather than R42 000.

What to do this week

1. Run every unpaid invoice through the prescription checker. Anything near three years is the priority.
2. Confirm the legal name and address of each debtor. A CIPC search costs little and prevents suing the wrong entity.
3. Send a letter of demand on the oldest debts, with a deadline.
4. Offer a payment plan in writing for customers who are genuinely struggling. A signed acknowledgement of debt with instalments restarts prescription and gives you a document to sue on if they default.
5. Fix your terms so that future invoices carry interest, a collection costs clause and a clear due date.
6. Calculate what is really owed with the debt interest and in duplum calculator, remembering that unpaid interest cannot exceed the unpaid capital.

Documents and records to set up

• A debtors' age analysis, reviewed weekly.
• A three step reminder sequence: friendly reminder on the due date, firm reminder at fourteen days, letter of demand at thirty.
• A template letter of demand.
• A template acknowledgement of debt with an instalment schedule.
• A file for each debtor holding the contract, invoices, delivery proof and all correspondence.
• Proof of service for every demand: email read receipts, registered post slips, or a signed delivery note.

Realistic timeline

• Letter of demand to payment, where it works: one to three weeks.
• Small Claims Court, from demand to hearing: roughly two to four months, depending on the court.
• Magistrates' Court undefended claim, from summons to default judgment: six to ten weeks.
• Execution against movable goods: a further one to three months.
• Emoluments attachment order: instalments run until the debt is paid, often a year or more.
• A defended Magistrates' Court action: one to two years.

Common mistakes and what they cost

• Waiting past three years. The debt is gone. Nothing recovers it.
• Suing a trading name. The summons is defective and must be reissued at your cost.
• Sending demands to the wrong address. The customer later says they never received it. Use the registered address for a company.
• Continuing to supply a non-paying customer. The debt grows and your leverage shrinks.
• Taking a company's debt to the Small Claims Court. The claim is refused because the claimant is not a natural person.
• Accepting verbal payment promises. Get a signed acknowledgement of debt. It restarts prescription and shortens the court process.
• Spending R30 000 to recover R15 000 from someone with no assets. Check whether the debtor has anything worth attaching before you sue.

If you cannot afford an attorney

If you trade as a sole proprietor, the Small Claims Court involves no attorney fees and the clerk will help you complete the forms. See the Small Claims Court calculator for the limit and the steps.

The Small Enterprise Development Agency offers free business advice and can help with debtor management systems. University law clinics assist small traders who meet their criteria. Debt collectors registered with the Council for Debt Collectors will chase debts for a commission, but they cannot sue on your behalf and their fees are regulated. Legal Aid South Africa on 0800 110 110 generally does not assist businesses to collect debts, but may help an individual who falls within its means test.

Frequently asked questions

Can I charge interest on an unpaid invoice? Yes, at the rate in your contract or, if there is none, at the prescribed rate of interest set by the Minister. Interest stops accumulating once it equals the unpaid capital. Use the debt interest and in duplum calculator.

Can I list the customer with a credit bureau? Only if you follow the rules, which include giving notice and allowing time to dispute. Doing it improperly exposes you to a complaint.

What if the customer says the work was defective? Then the claim is likely to be defended, and you should expect a longer process. Consider whether a compromise is cheaper than a trial.

What if the customer is liquidated or sequestrated? Your claim becomes a claim against the estate. You prove it with the liquidator or trustee, and you are paid only if there is money after secured and preferent creditors.