Credit sales in Uganda: terms, time limits and small claims
How to sell on credit without losing the money: written terms, an ageing list, the six-year limitation rule and the UGX 10 million small claims procedure.
Selling on credit is how a lot of Ugandan business gets done: the hardware shop that supplies a builder until the client pays, the pharmacy that lets a regular settle at month end, the workshop that delivers furniture against a deposit. Credit wins customers. It also loses money when the paperwork is thin. Here is how to keep the sale and the cash.
Write the terms before the goods leave
A credit sale is a contract, and the terms are whatever both sides can prove they agreed. Put four things on the invoice or delivery note, and have the customer sign it:
- The amount and what it was for, item by item.
- The due date (not "later" or "end of month" but a date).
- Who the customer is, with a phone number and, for a business, the registered name.
- What happens if the date is missed, for example that further supplies stop until the account is cleared.
Keep the signed copy. Under the Tax Procedures Code Act you must retain business records for five years after the end of the tax period they relate to, so the invoice has to be kept anyway; make it do double duty as your evidence.
Run an ageing list every week
An ageing list groups every unpaid invoice by how long it has been outstanding: current, 30 days, 60 days, 90 days and older. It is the single most useful page in a business that sells on credit, because it tells you where to spend your Monday morning. A debt that is 35 days old needs a reminder. One that is 95 days old needs a conversation. Review it weekly, and set a rule such as no new credit to any customer with an invoice over 60 days.
The six-year clock
Uganda's Limitation Act provides that actions founded on contract shall not be brought after six years from the date the cause of action arose. For a credit sale that is normally the due date you wrote on the invoice. Six years sounds generous, and it is, but two points matter in practice.
First, the Act's Part III deals with acknowledgment and part payment: where a debtor acknowledges the debt or makes a part payment, the right is deemed to have accrued on the date of that acknowledgment or payment. A customer who pays UGX 50,000 off an old UGX 400,000 balance, or who signs a statement agreeing the figure, has in effect restarted the clock. Record every part payment against the specific invoice and get written acknowledgments when you reschedule a debt.
Second, the practical limit is far shorter than the legal one. Debts that are not chased in the first 90 days are rarely collected in full. Treat the six years as a backstop, not a plan.
When talking stops working: the small claims procedure
For debts that do not justify a lawyer, Uganda has the Judicature (Small Claims Procedure) Rules, 2011. The Rules apply to a claim whose subject matter does not exceed ten million Uganda shillings, and they are designed to be used without an advocate: a party appears in person and may not be represented by an advocate during the proceedings, and a body corporate appears through a representative who is not an advocate. The Rules exclude certain matters, among them claims against the Government, defamation and contracts of service, but an unpaid invoice for goods supplied is squarely the kind of dispute they were written for.
The procedure starts with a demand in the form the Rules prescribe, asking the defendant to satisfy the claim within fourteen days, and moves quickly from there. Only a natural person may institute an action, so a company owner brings the claim personally while the business can be sued as a defendant. If your debt is above UGX 10 million, the ordinary courts apply and it is time to take advice.
Before you reach the court
Most debts are settled long before a form is filed, provided the record is clean. Make sure you can show:
- The signed invoice or delivery note with the due date.
- A statement of account listing every invoice and every payment.
- Your reminders, with dates: the SMS, the call log, the letter.
- Any acknowledgment or part payment, dated.
A debtor who receives a one-page statement that matches their own receipts usually pays. A debtor who receives a round number and a threat usually argues.
Decide who gets credit at all
Finally, the cheapest debt to collect is the one you never extend. Credit should be a decision about a named customer with a history, not a favour granted at the counter under pressure. Set a limit per customer, review it against their payment record, and let the system refuse a sale that would take them over it. Your cashier will thank you for having a rule to point to.
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