What Is an Acknowledgement of Debt (AOD)

Table of ContentsThe Short Answer: What Is an Acknowledgement of Debt?Why an Acknowledgement of Debt Matters More Than You ThinkThe Key Elements of a Legally Sound AODWhen Should You Ask a Debtor to Sign an AOD?What Happens to Prescription When You Have an AOD?Common Mistakes Businesses Make With an AODOur Team’s Experience: What We’ve Seen in the FieldHow an AOD Fits Into Your Broader Debt Recovery StrategyAOD vs. Settlement Agreement: What’s the Difference?Actionable Tips for Credit Managers, CFOs, and SME OwnersFrequently Asked QuestionsThe Short Answer: What Is an Acknowledgement of Debt?An Acknowledgement of Debt (AOD) is a written, signed document in which a debtor formally confirms that they owe a specific amount of money to a creditor, under specific terms. In South Africa’s commercial credit environment, it is one of the most powerful — and most underused — tools available to credit managers, CFOs, and SME owners.

If your business extends credit to other businesses, you need to understand what an Acknowledgement of Debt is and why it matters. Full stop. It can be the difference between collecting what you’re owed and writing off thousands — sometimes hundreds of thousands — of rands as bad debt.

Think of it this way: a tax invoice proves you delivered goods or services. An AOD proves the debtor agrees they owe you the money. That distinction carries enormous legal weight.

Why an Acknowledgement of Debt Matters More Than You ThinkLet’s be honest. Most business owners and even many credit managers treat the AOD as an afterthought — something you scramble for when an account is already 90 days overdue. That’s a costly mistake.

Here’s why an Acknowledgement of Debt is so important in the South African B2B credit environment: 

It removes disputes about the amount owed. Once a debtor signs an AOD, they cannot easily turn around and say “I don’t owe that much” or “I never received those goods.” The debt is confirmed in writing, with a signature(s).It interrupts prescription. Under the Prescription Act 68 of 1969, most commercial debts prescribe (become legally unenforceable) after three years. A signed AOD resets that clock — giving you more time to collect without having to rush to court. It strengthens your legal position dramatically. If you do eventually need to take legal action, a signed AOD makes your attorney’s job significantly easier and your prospects of success much higher.It creates a repayment framework. A well-drafted AOD will include agreed repayment instalments, interest charges, and consequences for default — effectively turning an overdue account into a structured repayment arrangement.It serves as early psychological leverage. The act of asking a debtor to sign an AOD sends a clear signal: you are serious, you are organised, and you know your legal rights.“An Acknowledgement of Debt is not just a piece of paper. It’s a legal acknowledgement that transforms a disputed invoice into an enforceable obligation.” — Kredcor Debt Recovery TeamThe Key Elements of a Legally Sound AODNot all AODs are created equal. We’ve seen businesses use hastily drafted documents that fall apart under legal scrutiny. For an Acknowledgement of Debt to hold water in a South African court, it should include the following elements:

1. Full Identification of Both Parties The full legal names, registration numbers (for companies), and contact details of both the creditor and the debtor must be clearly stated.

2. The Exact Amount Owed The principal debt must be stated clearly. Vague language like “approximately R50,000” is dangerous. The amount must be specific.

3. Acknowledgement of the Debt in Clear Terms The debtor must explicitly confirm, in unambiguous language, that they owe the stated amount to the creditor.

4. The Origin of the Debt The document should briefly describe why the debt exists — for example, goods delivered, services rendered, or a loan advanced. This creates context and prevents future claims of misrepresentation.

5. Agreed Repayment Terms If the debt will be repaid in instalments, each instalment amount, due date, and payment method must be detailed.

6. Interest Provisions State clearly whether interest applies, the rate, and from which date it accrues. The National Credit Act places limits on interest for certain credit agreements, so be sure you’re compliant.

7. Consequences of Default If the debtor fails to honour the AOD, what happens? This clause typically states that the full outstanding amount becomes immediately due and payable, and that legal action may follow.

8. Signature and Date The AOD must be signed and dated by an authorised representative of the debtor — not just any employee. For close corporations or companies, the signatory must have authority to bind the entity.

9. Witnesses While not always legally required, having the document witnessed by a third party significantly strengthens its enforceability.

When Should You Ask a Debtor to Sign an AOD?Timing is everything. Our team’s experience at Kredcor over more than 26 years of commercial debt recovery in South Africa shows that the best time to introduce an AOD is earlier than most businesses think.

Consider requesting an AOD in the following situations:

When an account goes beyond 60 days overdue — at this stage, the risk of non-payment is rising, and you want written confirmation of the debt before the situation deteriorates further.When a debtor acknowledges the debt verbally but hasn’t paid — convert that verbal acknowledgement into something you can act on.When a debtor requests extended payment terms — if they need more time to pay, an AOD formalising the arrangement is absolutely non-negotiable.When a debtor disputes the amount but agrees in principle — once a figure is agreed upon, get it in writing immediately.When a business starts showing financial distress signals — late payments, bounced cheques, sudden changes in communication behaviour. These are red flags. Act before liquidation or business rescue is on the table.When you’re handing the account over to a debt collector — a signed AOD makes the recovery process faster, cheaper, and more effective.What Happens to Prescription When You Have an AOD?This is one of the most critical — and most overlooked — aspects of commercial credit management in South Africa, and we want to give it the attention it deserves.

Under the Prescription Act 68 of 1969, a debt that is not acknowledged or acted upon will prescribe after three years. After prescription, the creditor loses the legal right to enforce the debt — even if it’s completely legitimate and well-documented.

Here’s where an Acknowledgement of Debt becomes incredibly powerful:

A signed AOD interrupts prescription. The three-year clock resets from the date the debtor signs the document.Partial payments also interrupt prescription, but a signed AOD is far more reliable than banking on a debtor making token payments.If your debt is approaching three years old, getting a signed AOD is often the most urgent priority before you can even think about legal action.We tested this in practice. We’ve found on numerous occasions that accounts we recovered — where the original invoice was nearly three years old — were only collectible because a signed AOD had reset the prescription period. Without it, the debt would have been legally dead.

This alone makes understanding the Acknowledgement of Debt worth your time.

Common Mistakes Businesses Make With an AODLet’s talk about what goes wrong, because this is where businesses lose money unnecessarily.

Mistake 1: Getting the wrong person to sign. A junior employee, receptionist, or sales rep cannot bind a company. You need a director, member, or a person with a written power of attorney. Always verify signatory authority.

Mistake 2: Vague or incomplete amounts. Leaving out accrued interest, collection costs, or legal fees from the total can create disputes later. Include everything clearly.

Mistake 3: Not including a default clause. Without a default clause, if the debtor misses an instalment, you may have to renegotiate or start fresh. A proper default clause makes the full amount immediately claimable.

Mistake 4: Using a generic template that isn’t South Africa-specific. South African law is specific. The National Credit Act, the Prescription Act, the Companies Act, and the Debt Collectors Act all have implications for how AODs should be structured. Generic templates downloaded from the internet may not adequately protect you.

Mistake 5: Waiting too long. We’ve said it before and we’ll say it again — by the time most businesses think about an AOD, the debt is already severely aged and the debtor is evasive. The AOD should be part of your standard credit management toolkit, deployed at the first sign of payment problems.

Mistake 6: Not keeping a signed original. This sounds obvious, but we’ve encountered cases where businesses cannot produce the original signed AOD. Keep the original in a secure file and make scanned copies as backups.

Our Team’s Experience: What We’ve Seen in the FieldI want to share something our team at Kredcor encounters regularly, because it’s instructive.

We receive accounts from clients — CFOs, credit managers, SME owners — who have been chasing the same debtor for six, twelve, sometimes eighteen months. They have emails, WhatsApps, promises, even partial payments. But they don’t have a signed Acknowledgement of Debt.

When we take on these accounts, our first priority is often to secure an AOD before anything else. Sometimes the debtor is still cooperative enough to sign — and that changes everything. We can structure a repayment plan, we have legal backing, and collection rates improve significantly.

When an AOD doesn’t exist and prescription is looming, our options narrow considerably. Legal proceedings become the only route, which means attorney costs, court delays, and uncertainty.

We found that clients who implement AODs as a standard part of their collections process — typically at the 30–60 day overdue mark — consistently achieve better recovery outcomes than those who don’t.

The data supports this. Our team’s experience across hundreds of commercial accounts confirms: businesses that use AODs proactively recover more debt, faster, at lower cost.

How an AOD Fits Into Your Broader Debt Recovery StrategyAn Acknowledgement of Debt doesn’t exist in isolation. It’s one tool within a broader credit management and debt recovery framework. Here’s how it connects to the bigger picture:

Stage 1: Credit Application & Onboarding Before extending credit, conduct thorough credit checks and require completion of a credit application form. Understand who you’re dealing with. This is your first line of defence.

Stage 2: Invoicing & Terms Clear, accurate invoicing with properly communicated payment terms (30/60/90 days, EOM billing, etc.) reduces disputes and creates a clean paper trail.

Stage 3: Early Collections Statements, payment reminders, and phone calls at 30 days overdue. Keep communication professional and documented.

Stage 4: AOD Deployment (60–90 Days Overdue) This is the sweet spot for introducing an Acknowledgement of Debt. The debtor is still engaged, the debt is acknowledged, and you formalise the repayment arrangement with legal backing.

Stage 5: Pre-Legal Collections If the AOD is signed but not honoured, pre-legal action kicks in — demand letters, credit bureau listings, and escalated recovery efforts by a professional debt collector.

Stage 6: Legal Action If all else fails, the AOD becomes a critical document in your legal proceedings, significantly reducing the complexity and cost of litigation.

Understanding this flow is exactly what we cover in our comprehensive A-Z Guide to Commercial Debt Collection in South Africa, which walks you from invoice right through to judgement. Well worth a read if you want to understand the full landscape.

AOD vs. Settlement Agreement: What’s the Difference?These two documents are sometimes confused, but they serve different purposes.

An Acknowledgement of Debt confirms that the full debt is owed and sets out repayment terms — typically where the creditor expects full recovery of the outstanding amount.

A Settlement Agreement (also called a compromise or settlement) is used when the creditor agrees to accept less than the full amount owed, usually as a final settlement. This might happen in situations involving business rescue, financial distress, or where the cost of full recovery isn’t justified.

Both documents need to be carefully drafted. Both should be signed by authorised representatives. Both interrupt prescription. The key difference is what you’re agreeing to recover.

In most commercial B2B situations, you want to start with an AOD — not a settlement agreement. A settlement agreement should only come into play once you’ve exhausted other options and made a deliberate business decision to write off a portion of the debt.

How South African Law Supports the Use of an AODIt’s worth noting that the legal framework in South Africa strongly supports the use of an Acknowledgement of Debt in commercial credit matters. Our article on Key South African Laws Governing B2B Debt Collection covers the relevant legislation in detail, but here’s a quick overview:

The Prescription Act 68 of 1969 — Governs when debts become unenforceable through prescription. An AOD interrupts prescription.The Debt Collectors Act 114 of 1998 — Regulates professional debt collectors like Kredcor, ensuring that the collection process (including the use of AODs) is conducted ethically and within the law.The National Credit Act 34 of 2005 — Primarily applies to consumer credit, but certain provisions affect business credit agreements, particularly regarding interest rates.The Companies Act 71 of 2008 — Relevant when determining who has the authority to sign an AOD on behalf of a company.Understanding these laws isn’t just academic. It directly impacts how you structure your AOD, who signs it, and how enforceable it will be if you need to take action. The Debt Collectors Act Explained article on the Kredcor website is a great resource if you want to get your head around the regulatory environment.

Actionable Tips for Credit Managers, CFOs, and SME OwnersLet’s get practical. Here are steps you can implement in your business right now:

1. Create a Standard AOD Template Work with your attorney or a specialist debt recovery firm to create a South Africa-specific AOD template that covers all the elements listed in this article. Don’t cut corners here.

2. Train Your Credit Team Every person in your credit or collections function needs to understand what an AOD is, when to use it, and how to get one signed. Make it part of your internal training.

3. Build AOD Deployment Into Your Collections Process Don’t leave it to chance. If an account reaches 60 days overdue without full payment, triggering an AOD should be a standard process step — not an exception.

4. Verify Signatory Authority Every Time Before you accept a signed AOD, confirm that the signatory is authorised. For companies, this typically means a director. Check the CIPC records if you’re unsure.

5. Follow Up Quickly if an AOD Is Breached An AOD is only valuable if you act on it. If the debtor misses an agreed instalment, don’t wait. Follow up immediately, invoke the default clause, and escalate if necessary.

6. Don’t Negotiate Down at the AOD Stage An AOD should reflect the full debt owed, including interest and costs. Don’t reduce the amount unless you’re specifically entering a settlement agreement and have made a deliberate business decision to do so.

7. Partner With a Professional Debt Recovery Firm If you’re finding it difficult to get debtors to sign AODs, or if signed AODs aren’t being honoured, that’s when you bring in the professionals. At Kredcor, we operate on a No Success – No Fee basis, which means there’s no financial risk to you in getting professional help. You can get a free quote here.

Frequently Asked Questions1. Is an Acknowledgement of Debt legally binding in South Africa?Yes — provided it meets the necessary legal requirements. An AOD signed by an authorised representative of the debtor, clearly stating the amount owed and the terms of repayment, is legally enforceable in South Africa. Courts recognise AODs as strong evidence of an admitted debt, which simplifies and accelerates legal proceedings if the debtor defaults.

2. Can a debtor refuse to sign an Acknowledgement of Debt?Yes, a debtor can refuse — and some will. However, a refusal to sign an AOD is itself a telling signal. It often means the debtor intends to dispute the debt, delay payment, or avoid their obligations entirely. If a debtor refuses to sign, escalate to pre-legal collections immediately. Refusal is not an end — it’s a cue to change strategy. A professional debt recovery firm can apply appropriate pressure and use alternative legal remedies.

3. How does an AOD affect the prescription of a debt in South Africa?Under the Prescription Act 68 of 1969, a commercial debt generally prescribes (becomes legally unenforceable) after three years of non-payment. A signed Acknowledgement of Debt interrupts this prescription period — the three-year clock resets from the date the AOD is signed. This means that even on older debts, obtaining a signed AOD before prescription runs can preserve your legal right to collect.

4. Can I use an AOD for a debt that a debtor partially disputes?Yes, and this is actually one of the most practical uses of an AOD. If a debtor agrees on part of the debt but disputes the rest, you can draft an AOD for the agreed-upon amount. This protects you on the undisputed portion while you resolve the remainder separately. It’s far better to have written acknowledgement and repayment agreement on R80,000 than to have nothing in writing while arguing about R100,000. Partial acknowledgements still interrupt prescription on the agreed amount and create enforceable legal obligations.

About KredcorKredcor is one of South Africa’s leading commercial debt recovery firms, with more than 26 years of experience collecting B2B debt across South Africa and the African continent. We are registered with the Council for Debt Collectors of South Africa (Reg Nr 0016365/06) and members of the Association of Debt Recovery Agents (ADRA Nr 474).

We operate on a strict No Success – No Fee basis. No admin fees, no monthly fees, no upfront payments. Just results.

If your business is struggling with overdue accounts, or if you want to put a proper AOD process in place before problems arise, contact us today for a free, no-obligation quote.

Kredcor — Your Commercial Debt Recovery Partners | Gauteng | Cape Town | KwaZulu-Natal | Africa | Global

This article is intended for informational purposes only and does not constitute legal advice. For specific legal matters, consult a qualified South African attorney.