Maintenance plans when the insurer writes a car off
What happens to a South African customer's service or maintenance plan when the car is written off, and how a dealer records a transfer or a refund.
By Achekam · · 5 min read · For Automotive businesses in South Africa
A customer bought a car eighteen months ago with a five-year maintenance plan. Last month the car was in a serious accident, and this morning the insurer's letter arrived: the vehicle is a write-off. The customer phones the dealership with a reasonable question. What happens to the plan they paid for?
Until recently the honest answer was often "it depends", followed by a long wait. The Competition Commission's aftermarket guidelines now give a clearer starting point. This article explains what they say, why the unused part of a plan is a liability in the books of whoever carries it, and how a dealership records either a transfer to a replacement vehicle or a refund.
The guideline: transfer, or cancel and refund
The Competition Commission's aftermarket guidelines say that a maintenance or service plan must be transferred to a replacement vehicle when the insurer writes the vehicle off. Where that is not possible, the consumer must be told of, and given, the right to cancel the plan or receive a refund of its remaining value. The Commission's aftermarket guidelines set out this provision alongside the rest of the rules on plans.
Two related points from the guidelines frame the conversation. At the point of sale, approved dealers must disclose the vehicle's price separately from the prices of service plans, maintenance plans and other value-added products, which consumers may decline or buy from any licensed provider at any time. And the guidelines themselves, prepared under section 79(1) of the Competition Act and effective from 27 March 2025, are not binding on the Commission, the Competition Tribunal or the Competition Appeal Court. They set out expected conduct rather than law, but a dealer that ignores them invites a complaint.
Who carries the plan
Before anything is recorded, establish who actually owes the customer the plan. Some plans are sold and carried by the manufacturer, some by a separate plan administrator, and some by the dealership itself. If a manufacturer or administrator carries the plan, the transfer or refund is theirs to process; the dealer's job is to help the customer make the request, with the write-off letter and the plan documents. The rest of this article is for a dealership that carries the plan in its own books.
Why an unused plan is a liability
Investopedia defines deferred revenue, also called unearned revenue, as a payment received in advance for goods or services not yet delivered, shown as a liability on the balance sheet until the obligations are fulfilled. It explains that deferred revenue is a liability because, until it delivers, the company owes the customer the promised goods or services, or a refund if it cannot provide them.
A maintenance plan fits that description exactly. When the customer paid for it, the dealer took money for services it would deliver over the plan's life. Each service performed earns part of it. Whatever has not yet been earned is owed to the customer, either as services on a vehicle or, after a write-off where transfer is not possible, as money.
Working out what remains
The plan's own terms should say how its remaining value is calculated. Typical approaches are by time elapsed, by distance driven, or by the services already delivered compared with those the plan covered. Whatever the method, document the calculation:
- the plan's start date and its original price;
- the services or repairs delivered under it, with dates and job card numbers;
- the method in the plan terms, applied step by step;
- the resulting remaining value.
Give the customer the calculation in writing. A refund figure without workings invites a dispute.
Recording a refund
Where the customer chooses to cancel and take a refund, two documents carry the transaction in Achekam.
The credit note. A credit note is issued from the invoice it corrects, in full or for chosen lines, posted to the ledger, and can be downloaded as a PDF or e-mailed. There is no credit note without an invoice, so the credit note is raised against the original invoice that included the plan, for the plan line and the remaining value. Any leftover credit is held for the customer.
The money. Customer payments are recorded against one invoice or spread across a customer's invoices, and any extra is held on the customer's account. Administrators can refund or reverse a receipt. Record the money paid back to the customer, then check that the customer's account shows nothing owing either way once both the credit note and the refund are in.
If the dealership has been releasing plan revenue gradually through journals, ask your accountant to post a journal that brings the deferred revenue balance for this plan to nil, so the books do not carry a liability that no longer exists.
Moving a plan to a replacement vehicle
Where the customer buys a replacement vehicle and the plan moves across, no money changes hands and no credit note is needed. The dealer still owes the remaining services; they are simply delivered on a different car.
What changes is the record. Update the plan register to show the replacement vehicle's details, the date of transfer and the remaining value carried across. If the dealership tracks deferred plan revenue per vehicle in its ledger, post a manual journal that moves the remaining balance from the old vehicle's line to the new one. Achekam refuses a journal that does not balance or that is dated in a closed month, and a posted journal can be corrected only by a reversal, so check the figure before posting.
What to keep on file
Once the insurer's write-off letter arrives, open a file for the plan and keep:
- the write-off letter;
- the original sale invoice and plan documents;
- the remaining-value calculation, as sent to the customer;
- the customer's written choice: transfer or refund;
- the credit note and refund record, or the transfer journal and updated register entry.
For how plan prices must be shown at the point of sale, see showing service plan prices apart from the car price; for working with insurers on claims, read insurer and excess billing.
A write-off is a bad day for the customer. A dealership that resolves the plan quickly, with the workings on paper, makes it a little less bad, and earns the next sale.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
