How Your Payment Terms Could be Damaging Your Business

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“Beware of little expenses; a small leak will sink a great ship.” (Benjamin Franklin)

Extending 30-, 60- or 90-day payment terms may seem like a simple trick to help your sales teams convert sales, smooth negotiations and boost customer service. What you may not recognise, though, is that those terms are not neutral commercial niceties – they are a form of credit.

When your business supplies goods or services today and accepts payment weeks or months later, it has effectively provided an unsecured loan to the buyer. That “invisible loan” has measurable costs: higher working-capital needs, lost interest income, distorted pricing decisions and elevated credit risk.

When you sell on extended terms, “accounts receivable” grows and cash on the balance sheet shrinks until the buyer pays. That increases days-sales-outstanding (DSO) and raises the working-capital requirement. If you borrow to cover the gap (common for seasonal businesses or those with tight margins) the interest paid on that borrowing is a direct cost of the terms you offered.

Even when you don’t borrow, the opportunity cost remains: cash not received cannot be used to reduce debt, invest in higher-return projects, or fund inventory when demand spikes. Over time the cumulative burden of routinely extended terms reduces agility and margins.

Unfortunately, many clients demand extended payment terms, and your competition may be prepared to accede to their wishes. So how do you ensure you keep the business without going out of business yourself?

1. Price the finance

Treat longer payment terms as a priced service. Build a transparent financing fee into orders that use 60- or 90-day terms, or publish two price lists: a net price for immediate payment and a financed price for deferred settlement. Customers accept explicit fees more readily than hidden margin increases, and your finance team can model return on capital precisely.

2. Offer structured early-payment incentives

Instead of unconditional long payment terms, offer predictable early-payment discounts or dynamic discounting tied to actual payment date. A 0.5–1.0% discount for payment within 7–10 days often costs less than the buyer’s short-term borrowing and converts receivables into near-cash for you.

3. Underwrite and limit credit formally

Move from ad-hoc allowances to formal credit applications and limits. Require a minimum credit assessment for extended terms, set credit lines tied to payment performance, and review limits at set intervals. For new or higher-risk customers, insist on shorter terms or staged delivery until a track record is established.

4. Design payment terms as part of commercial deals

Make terms a negotiation item linked to value. Trade extended terms for commitments: volume guarantees, longer contract terms, staged milestones, or partial upfront payment. Where applicable, split deals into an upfront deposit and a deferred balance tied to delivery or performance to reduce unsecured exposure.

5. Use technology and supply-chain finance options

Make payment easier with accurate, timely electronic invoicing, one-click payment links, and multiple payment methods. For larger B2B (business-to-business) accounts, consider invoice finance or supply-chain finance platforms. They enable buyers to settle invoices early and suppliers to access cash immediately, typically with transparent and lower financing costs than traditional receivables.

6. Make the invisible visible

 

It’s essential to stop treating DSO as a passive metric and make extended terms a line item in cash-flow forecasting. Your accountant (that’s us!) can help you report the cost of terms monthly: financing cost, incremental bad-debt risk, and the foregone investment return on delayed cash. We can also supply a short finance note quantifying the cost and proposed mitigation (discount, guarantee, deposit).

The bottom line

Payment terms are a commercial tool and a financial instrument. When finance and sales treat them differently, an invisible loan quietly accumulates. By following the steps outlined in this article you can make the loan visible and manageable. That shift preserves customer flexibility while protecting cash, margins and your company’s capacity to invest.

 

 

SARS Intensifies Trust Scrutiny—Are Your Trustees Prepared?

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The South African Revenue Service (SARS) has fundamentally changed the compliance landscape for all trusts. The latest revisions to the ITR12T (Trust Income Tax Return) and related legislation signal that SARS is moving toward full transparency, demanding granular detail on trust structures, distributions, and beneficiaries.

Trustees can no longer afford a passive approach; non-compliance is being flagged faster than ever, leading to immediate audits and severe penalties.

  1. New Compliance Cornerstone: The IT3(t) Data Mandate

The IT3(t) (Third-Party Data Return for Trusts) is now the most critical piece of the trust compliance puzzle, moving from an administrative task to a mandatory compliance check integrated directly into the tax return.

  • ITR12T Integration: The Trust Income Tax Return (ITR12T) now includes a mandatory confirmation question: “Did the Trust submit an IT3(t) return?” Failure to confirm submission will halt the filing process and trigger a non-compliance flag.
  • Automated Cross-Validation: SARS uses the IT3(t) data—which reports all amounts vested in beneficiaries (income, capital gains, and capital)—to directly pre-populate beneficiaries’ individual tax returns.
  • The Mismatch Risk: Any discrepancy between the amounts reported by the trust on the IT3(t) and the amounts declared by the beneficiary will be instantly visible to SARS’ automated systems, virtually guaranteeing an audit or investigation.
  1. Full Transparency: The Beneficial Ownership Disclosure

In line with international Financial Action Task Force (FATF) requirements, SARS is aggressively enforcing beneficial ownership (BO) disclosure to combat illicit financial flows.

  • Mandatory Detail: Trustees must provide extensive personal details, including the South African ID number, for every natural person who qualifies as a Beneficial Owner.
  • Broad Definition: A BO includes the Founder/Settlor, all Trustees, and all Identifiable Beneficiaries (even those who have not yet received a benefit).
  • Supporting Documents Required: The ITR12T mandates the upload of documents (such as an organogram or spreadsheet) that clearly depict the BO structure and control hierarchy.
  • Trustee Liability: Non-disclosure of BO information to both SARS and the Master of the High Court can lead to significant financial penalties and potential criminal sanctions for the trustees personally.
  1. Legislative Updates Restricting Tax Planning

Recent legislative changes have further tightened the net, targeting structures that previously offered tax efficiencies.

  1. Restriction on Flow-Through for Non-Residents

The long-standing flow-through principle, where income distributed to a beneficiary retains its nature, is now limited to South African resident beneficiaries only.

  • Impact: Income and capital gains vested in non-resident beneficiaries are now taxed within the trust itself at the highest flat rates (45% for income; 36% effective rate for capital gains).
  • Compliance Need: Trusts with non-resident beneficiaries must ensure they meet all provisional tax obligations and re-evaluate their distribution strategies.
  1. Attribution Rules and Minor Beneficiaries

The Donor Attribution Rules (Section 7 and Paragraph 69) remain a high-risk area.

  • Risk: Income or capital gains stemming from assets donated by a parent to a trust that are vested in their minor child are attributed back to the parent and taxed at the parent’s marginal rate.
  • The Cross-Check: The integration of the IT3(t) makes it simple for SARS to cross-check distributions to minors against the parent’s tax return, instantly highlighting any failures to apply these complex attribution calculations.

Immediate Action for Trustees

The time for a reactive approach is over. Trustees must proactively ensure their trust administration is watertight to avoid triggering a SARS audit.

  1. Verify Beneficial Ownership: Ensure all BO details are current, accurate, and fully documented before filing.
  2. Align IT3(t) and ITR12T: Confirm that the vesting decisions and amounts reported on the IT3(t) are 100% consistent with the ITR12T and the beneficiaries’ expected tax declarations.

Review Distribution Strategy: If the trust has non-resident beneficiaries or distributes to minors, urgently review the strategy to ensure compliance with the new limitations and the strict attribution rules.

URGENT WARNING: The Catastrophic Impact of CIPC FINAL Deregistration

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A company’s failure to maintain its statutory compliance, primarily the filing of Annual Returns for two or more successive years, triggers an administrative process that leads to the complete and immediate withdrawal of its legal status by the Companies and Intellectual Property Commission (CIPC).

The status of “Final Deregistered” is not merely a formality—it is a catastrophic event that instantly strips the business of its legal identity and triggers severe financial and legal liabilities.

  1. The Immediate Loss of Legal Personality

Final deregistration under the Companies Act (No. 71 of 2008, Section 82(3)) has immediate and devastating legal consequences:

  • Cessation of Existence: The company or close corporation (CC) is removed from the CIPC register and legally ceases to exist as a separate juristic person (CIPC).
  • Invalid Contracts: Any contracts, agreements, or transactions entered into by the company after the final deregistration date may be deemed void (CIPC). This exposes the directors to risk and can lead to financial losses with clients and suppliers.
  • Frozen Banking: Financial institutions (banks) are notified and typically freeze the company’s bank accounts, immediately halting operations and cash flow (CIPC).
  1. Assets are Forfeited to the State (Bona Vacantia)

This is arguably the most severe financial consequence for the business:

  • Forfeiture of Assets: All the company’s assets—including immovable property (land, buildings), bank balances, and intellectual property—are automatically transferred to the State as bona vacantia (ownerless goods) (CIPC).
  • Loss of Creditor Enforcement: While a company’s debt is not extinguished by deregistration, creditors lose the immediate ability to enforce those debts against the now-non-existent entity (CIPC).
  1. Personal Liability for Directors and Members

Deregistration does not end the liability of the individuals who governed the entity.

  • Continuing Liability: The liability of any former director or member for any act or omission that took place before deregistration is unaffected and continues (CIPC).
  • Reckless Trading Risk: Directors who knowingly allowed the company to trade or accrue debt while non-compliant or undergoing deregistration risk being held personally liable for the company’s debts (CIPC). This can also extend to common law actions for reckless or fraudulent trading.
  • Notification Failure: The CIPC sends warnings to the registered contact details of directors/members. Failure to receive these due to outdated contact information is the responsibility of the director, not the Commission (CIPC).

Reinstatement: An Expensive and Uncertain Process

While reinstatement is possible, it is not guaranteed and requires a significant administrative effort.

Reinstatement Requirement Practical Impact
Proof of Economic Value The company must provide sufficient documentary proof (e.g., bank statements covering a period before and after deregistration) that it was in business or had assets at the time of final deregistration (CIPC).
Clearance of Backlog All outstanding Annual Returns, associated fees, penalties, and the latest Beneficial Ownership (BO) declaration must be filed and paid (CIPC).
Process Length & Cost The process is complex, involves a dedicated application (Form CoR 40.5), a non-refundable application fee (R200.00 as of the latest guide), and is time-consuming (CIPC).

 

CRITICAL NOTE: If a company was not in business or held no economic value at the time of final deregistration, CIPC will reject the reinstatement application. The only recourse is to register a new entity (CIPC).

Directors and business owners must check their status on the CIPC register immediately and resolve all Annual Return and Beneficial Ownership arrears to prevent the catastrophic event of final deregistration.