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Forms of Securing Debt from a Business Debtor

15 August 2005 6 Comments

The concept of separate legal personality for certain forms of business is a practice which we inherited from English law and it has important consequences when extending credit to a “business debtor”. When dealing with private companies, close corporations and even to a degree trading trusts you have to be aware that the shareholders/directors, members or trustees are not personally liable for the debts incurred by the business. In addition to this factor is the fact that the credit extended to business debtor can sometimes be very large.

Therefore creditors extending credit to business must look for various forms of security from their debtors. Some of the forms of security are listed below together with their a brief description and some of their pros and cons.


Is a contract whereby a person,  the surety, obliges himself on behalf of a debtor to a creditor, for the payment of the whole, or part of what is due from such debtor. The advantage of a suretyship is that if the debtor does not pay, there is a second source to claim from. On the other hand it does not make a bad risk a good risk and when has to look at exactly who is signing surety and their credit worthiness.

Cession of Book debts

Here a debtor cedes his the right to collect on their outstanding debtors to a creditor as security for his debt with the creditor. The advantage of this being that it is usually the single largest liquid asset of a business but the disadvantage is that the collectablity of these debts is unknown and unreliable.


A contract whereby a debtor places property in the hands of his creditor to secure their debt. An advantage, and potential disadvantage, is that you have the property in your possession to sell on default and another disadvantage is that the asset must be returned in the same condition as it was given.

Post-dated cheques

A cheque draw for presentation at a future date, which is not strictly a form or security but is a way to ensure that a future payment can at least be presented for payment although it maybe be dishonoured.


This is a legal right of retention over property held by a creditor until the creditor’s claim in respect of that property in the creditor’s possession has been paid. You have leverage over the debtor in that they can not get return of their property until they have paid or secured your debt. The property must be returned when the account is paid in exactly the same condition as it was given and if the property is lawfully removed from your possession you loss your right to the lien.

Notarial Bond

Obtained by registering a general Notarial bond over the movable property of a debtor, such as stock or furniture. The security is in writing and registered with the deeds office but this security only becomes effective on the perfecting of the bond by a court application.

A more effective notarial bond is the Security by Means of Movable Property Act, 57 of 1993 allows for a notarial bond to be registered in respect of specified corporeal, moveable property. This form of notarial bond is effective on the insolvency of the debtor, which a general notarial bond does not unless perfected before insolvency.

Both process are relatively involved and timely as they involve a notary and registrar’s office.

Mortgage Bond

A registered bond over immovable property of a debtor is a very effective security depending on the value of the property, the number of other bonds but it is a lengthy and involved process to register and in addition can be costly relative to the size of the debt and is only suitable for relatively debts.


  • Credit Management SA » Blog Archive » Granting Credit said:

    […] The importance of having security and the various forms of security, particularly when dealing with a commerial debtor has been highlighted in a previous post entitled, “Forms of Securing Debt from a Business Debtor” and I suggest you read that posting if you have not already done so. […]

  • Credit Management SA » Blog Archive » Commecial Debt Collections said:

    […] Ultimately it is a numbers decision where the creditor has to work out whether paying a commission on a large debt is better then paying an attorneys fixed tariff on work done. In addition commercial creditors with large individual debt should have secured their debt and the enforcement of such security is really the domain of attorneys. Furthermore specialist attorneys can use other highly effective means of collection such as liquidations, see the article on the Bentley Attorneys website in this regard. […]

  • Business Debtor Securities - so important | Credit Management SA said:

    […] being the most common, through to bonds. Details of the different types of securities are found in our article over here. That is why we encourage clients to have a sound credit application form, incorporating at least a […]

  • Venganai Chereni said:

    Its wonderful to have such a site its educating as well as indicating certain measures that individuals and corporations can refer to,some organisations are really doing bad debt collections,infact unethical debt collection which is totally unacceptable.

  • Don’t Let a Blank Suretyship Leave You With A Blank Expression | Bentley Credit Management said:

    […] have in previous articles pointed out the importance of a suretyship as security to a creditor, given that with the limited […]

  • Issues to consider when using Cession of Book Debts | Bentley Credit Management said:

    […] In a previous article we looked at the various different forms of security that a  commercial creditor providing credit to legal entities with limited liability can use to secure their debt. To view the article click here. […]

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