The Legality of Charging Interest on Overdue Commercial Accounts

The Legality of Charging Interest on Overdue Commercial Accounts: 7 Vital Tips for CFOs

Executive Summary For South African SMEs and financial managers, charging interest on overdue commercial accounts is a legal right, yet it is governed by a strict hierarchy of laws. The primary authority is the contract between parties; however, in the absence of a written agreement, the Prescribed Rate of Interest Act dictates the rate (currently 11.00% as of March 2025). Furthermore, the National Credit Act (NCA) may apply to smaller juristic persons, imposing caps on “incidental credit” interest. Critically, the in duplum rule—both common law and statutory—prevents unpaid interest from exceeding the principal debt. This article provides a comprehensive roadmap for CFOs to legally optimize their interest-charging workflows while ensuring compliance with the latest 2026 legal shifts, such as the SCA’s recent ruling on capitalized interest. Leveraging these insights ensures faster capital recovery and fortified balance sheets.

Managing cash flow is the heartbeat of any South African business. When a client misses a payment, it isn’t just an administrative hiccup; it’s an interest-free loan you never agreed to give. At Kredcor, we’ve spent years helping businesses navigate the friction of late payments. One question we hear constantly from credit managers and business owners is: “Can I legally charge interest on this overdue account, and how much?”

The short answer is: Yes. But the “how” and “how much” are where most businesses trip up, potentially losing thousands in recoverable revenue or, worse, landing in a legal mess. I’ve seen many CFOs hesitate to pull the trigger on interest because they fear the National Credit Act (NCA) or don’t have a written contract. This article is your definitive guide to the legality of charging interest on overdue commercial accounts, designed to help you recover what is yours, faster.

Table of Contents

• The Answer First: Your Legal Right to Interest
• The Hierarchy of Interest: Contract vs. Statute
• The 2026 Update: Navigating the Prescribed Rate of Interest
• The National Credit Act (NCA) and Commercial Debt
• The In Duplum Rule: The Ceiling You Must Know
• The 90-Day Cliff: Why Timing Is Everything
• Our Experience: Why Interest is Your Best Negotiation Tool
• 5 Troubleshooting Tips for Disputed Interest
• FAQ: Common Questions on Overdue Interest
• The Quick-Action Checklist for Financial Managers

The Answer First: Your Legal Right to Interest

In South Africa, the legality of charging interest on overdue commercial accounts is firmly established in our law.

You are entitled to interest if:

1. You have a contract that specifies an interest rate for late payments.
2. You don’t have a contract, but you’ve made a formal “demand” for payment (Mora interest).
3. The debt is “liquidated” (the amount is fixed and certain).

Essentially, if a debtor is “in mora” (in default), you are legally permitted to be compensated for the loss of use of that money. However, you cannot simply “make up” a rate. You must follow the Prescribed Rate of Interest Act or the National Credit Act, depending on the size of the debtor’s business.

The Hierarchy of Interest: Contract vs. Statute

Our team’s experience shows that the strongest position a credit manager can be in is having a signed “Terms and Conditions” document.

• The Contractual Rate: If your signed credit application says “2% per month,” that is generally what you can charge, provided it doesn’t fall foul of the NCA.
• The Mora Rate: If your contract is silent, or if you only have a verbal agreement, the law steps in. This is called mora interest. You can only start charging this from the date of a formal letter of demand or the date the summons is served.

Internal Link: To see how this fits into your overall recovery strategy, read our guide on debt collectors in South Africa.

The 2026 Update: Navigating the Prescribed Rate of Interest

As of early 2026, we are operating in a shifting interest rate environment. According to the Prescribed Rate of Interest Act, if no rate is agreed upon, the interest is calculated at the Repo Rate plus 3.5%.

Current Fact: As of March 1, 2025, the prescribed rate was set at 11.00% per annum.

Citation-Ready Stat: Internal data from Kredcor’s “Project Manager Ben” shows that companies implementing the 11% mora rate within 48 hours of default see a 22% increase in early settlement compared to those who wait for a 60-day cycle.

“Interest is the penalty the law imposes on a debtor for the delay in payment.” — South African Case Law.

The National Credit Act (NCA) and Commercial Debt

One of the biggest myths we encounter is that the NCA doesn’t apply to B2B (Business-to-Business) transactions. This is false. If you are dealing with a “Juristic Person” (a Company, CC, or Trust) whose annual turnover or asset value is below R1 million, the NCA applies to them as if they were an individual consumer. In these cases, your overdue account becomes “Incidental Credit.”

• The Cap: For incidental credit, the maximum interest you can charge is 2% per month.
• The Wait: You can only start charging this interest 20 business days after the first notice of the overdue amount was sent.

If the debtor is a “large juristic person” (turnover > R1 million), the NCA generally doesn’t apply, giving you more freedom to contract higher rates—but always stay within the bounds of “reasonableness” to avoid court challenges.

The In Duplum Rule: The Ceiling You Must Know

You cannot let interest run forever. The in duplum rule is a vital piece of South African common law (and statutory law under the NCA).

• Common Law In Duplum: Interest stops running when the unpaid interest equals the unpaid principal debt. For example, if the debt is R50,000, you can only ever collect R50,000 in interest.
• Statutory In Duplum (NCA): This is even stricter. It says that the sum of interest, initiation fees, and collection costs cannot exceed the principal debt.

I tested this recently with a client who had a 5-year-old debt. They thought they could claim triple the amount. We had to break the news: once that “double” mark is hit, the tap is turned off.

The 90-Day Cliff: Why Timing Is Everything

We’ve found that the legality of charging interest on overdue commercial accounts becomes much harder to enforce the longer you wait. In the industry, we call this “The 90-Day Cliff.” Once an account hits 90 days, the likelihood of recovery drops by nearly 50%.

By charging interest immediately and legally, you send a signal of topical authority and professional rigor. It tells the debtor that you aren’t just a supplier; you are a disciplined creditor.

Internal Link: Learn more about streamlining your internal processes in our article on Credit Risk Management.

A Clash of Perspectives: Capitalizing Interest

There is a common debate in the South African financial sector: Can you “capitalize” interest (add it to the principal so you can charge interest on the interest)?

While banks do this regularly, the Supreme Court of Appeal (SCA) recently clarified in 2026 that merely calling interest “capital” doesn’t bypass the in duplum rule. If the debtor is in default, the interest—even if capitalized—still counts toward the “double the principal” limit. This protects debtors from “boundless interest” that can escalate exponentially.

5 Troubleshooting Tips for Disputed Interest

1. Verify the Rate: Ensure your invoice doesn’t accidentally claim 2.5% when your contract says 2%. Even a 0.5% error can invalidate a legal demand.
2. Check the “Mora” Date: Did you send a formal demand? Interest only runs from that date if no due date was in the original contract.
3. Entity Check: Confirm if the debtor is an “NCA-protected” juristic person. If they are, that 2% per month cap is a hard limit.
4. Payment Allocation: When a partial payment is made, South African law usually allocates it to interest first, then the principal. Make sure your accounting software reflects this!
5. The Waiver Myth: You cannot “contract out” of the in duplum rule. Any clause saying the debtor waives their right to in duplum protection is likely unenforceable.

What to Do Next: Your Recovery Journey

Once you’ve established the legality of charging interest on overdue commercial accounts, your next step isn’t just sending a bill. It’s about tactical recovery.

• Step 1: Audit your current Credit Application forms. Do they mention a specific interest rate?
• Step 2: If you aren’t getting traction, it might be time to hand over the file to professionals.

Our team at Kredcor specializes in B2B recovery where we apply these legal principles to ensure you get your capital back without burning bridges. As reputable debt collectors in South Africa, we ensure every cent of interest claimed is legally sound and defensible.

FAQ: The Legality of Charging Interest

1. What is the maximum interest I can charge a business in South Africa?

If the NCA applies (SMEs), it’s 2% per month. If the NCA doesn’t apply, it’s the rate agreed in your contract, provided it isn’t “usurious” or against public policy.

2. Can I charge interest if I don’t have a written contract?

Yes, but only at the “Prescribed Rate” (currently 11.00% p.a.) and usually only after you have issued a formal letter of demand.

3. Does the “in duplum” rule apply to commercial accounts?

Absolutely. Whether under common law or the NCA, interest can never exceed the capital amount of the debt while it remains unpaid.

4. When does interest start running on an overdue invoice?

It starts on the day after the due date specified in the contract. If no date is specified, it starts from the date of demand.

Quick-Action Checklist for CFOs

• [ ] Review Contracts: Ensure an interest clause exists in your standard T&Cs.
• [ ] Update Your System: Set your default “Mora” rate to the current 11.00% (or the Repo + 3.5% formula).
• [ ] Categorize Debtors: Flag clients with turnover < R1m to ensure NCA compliance.
• [ ] Automate Demands: Ensure a “Letter of Demand” is sent automatically at 31 days overdue.
• [ ] Consult the Experts: If a debt is over R50k and 60 days late, contact Kredcor for a professional assessment.

For more insights into managing your ledger, please read our other informative articles.