Financial Data
Updated 25 Feb 2020

Guidelines on conducting safe business in South Africa (Part 1)

In this two-part series, you will earn how to protect your business as you take it from strength to strength. 

Mareon Basson, 10 July 2017  Share  0 comments  Print

All the answers to your unique business lifestage questions

Though there have been many changes in South Africa’s economic climate during the course of this year, if managed correctly, a company can prevent the possible pitfalls most competitors have succumb to.

Here are some guidelines to ensure the safeguarding your company:

1. Know your clients/partner 

The above may seem obvious or unnecessary to most, but in order to safeguard your company, it is of the utmost importance to know who you are dealing with; whether it is a future client or a company you are investing in. 

We suggest doing a credit search on the potential client, be it a company or individual, to ensure there aren’t any surprises waiting in the future and to prevent a situation where the client can in essence not afford services/products requested due to debt obligations towards other institutions. In addition, we recommend that you always request and verify the necessary documents in terms of the Financial Intelligence Centre Act, 38 of 2001 (more commonly known as “FICA”), as amended, to ensure your client is who he says he is.

Related: The importance of business reputation and its impact on you

If it is a company you are investing in, you have the right, and also the responsibility, to know who you are investing with, and as such the same due diligence procedures need to be applied as with potential new clients.

2. Ensure that the cash-flow of your company is carefully managed

Assess what the company’s current payment terms and options with its clients are and ensure that there is a clear understanding between both parties regarding fees and payment structures. It is always advisable to agree on shorter payment terms, i.e. 30 days, to ensure cash flow is maintained. Depending on the type of services the company renders to its clients, it will also be good to ascertain whether or not it will be possible to request deposits from clients.

The most effective way to ensure compliance with payment terms and structures, is to have a proper agreement drafted by a professional in place. This agreement will govern the relationship between the company and its clients by clearly setting out how payment and delivery will work. This ensures both parties understand what their rights and obligations are and what the repercussions will be in the event of a default or breach by any one of the parties.

In addition, or as an alternative to a deposit as referred to above, there are a number of possibilities, although not widely accepted in all practices, to request pre-payment from clients.  This is where the importance of knowing your client comes into play.  Certain clients will gladly abide to a pre-payment arrangement, whereas others may completely withdraw from an agreement if so requested.

To ascertain whether or not a pre-payment may be considered, it will be necessary for professionals, like attorneys, to evaluate the business of the company to determine whether a pre-payment may be requested in respect of certain services and/or products of the company. 

Ensure topics such as specific rates and/or payment arrangements (deposits/pre-payments) are clearly explained and agreed upon to always ensure transparency between the company and its clients and to avoid any future disputes.

3. Ensure that the company’s Terms and Conditions (“T&C’s”) are drafted by professionals who knows and understands the business of the company and can tailor same to the specific needs of the company

T&C’s are a set of rules and guidelines, which a client will agree to and sign, in addition to any other agreement between the company and him/herself. 

If a company does not specify its T&C’s, it places them at risk of uncertainty and misunderstandings – it’s vital to establish the actual arrangement between the two parties involved in any deal. The company needs to cover itself and ensure that clients or partners have no opportunity to go back on their word. Equally, if the T&C’s are in writing, it is evidence one can produce before a court of law in the event of a dispute between the parties. 

Related: Managing the dilemmas that diversity in business brings

Properly drafted T&C’s should act as a manual for doing business by ensuring both parties have absolute clarity on what should happen in any given situation. As already mentioned, should clearly set out what the agreed terms are between parties and, more importantly, what happens if things go wrong or one party wants to cancel the agreement or is unable to continue.

Having well-drafted T&C’s from the outset can also save a lot of money by addressing all issues from the start. This in turn may also avoid disputes later on and if a dispute does arise, the terms and conditions will clearly outline the proper procedures for resolving the dispute.

It is important to make sure the company’s T&C’s are specifically drafted for their business – one cannot assume another business will have the same needs as theirs. Crucially, it is necessary to consult an attorney and avoid the temptation to copy someone else’s T&C’s as their business is different and they may not have consulted an attorney themselves. 

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About the author

Mareon Basson

Mareon Basson obtained LLB degree in 2013, she completed her articles at KEBD Inc in Pretoria and was admitted as an attorney in May 2014. Thereafter she was appointed as an associate at KEBD Inc in their corporate and commercial law department. In March 2017, Mareon joined the team of SchoemanLaw Inc in Cape Town as a Junior Associate. Her passion lies predominantly in commercial law.

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