I am in a business of importing rice and selling it to supermarkets and other outlets. Most sales provide credit for a period specified in the contract. But even then buyers may often delay payments which causes us great difficulties with our suppliers. Is it permissible for us to add a penalty clause which specifies an amount to be added for every month's delay? We are reluctant to do that for fear that it may be usurious. What we are after is payment on time, but we simply cannot make clients do that if there is no penalty clause. Please comment.
This is a very real problem, particularly when business generally goes through a sticky period and there is little liquidity overall.
The people who suffer most are the kind ones who show understanding and allow their customers a longer period. It is unfortunate that there can be no winners in such a situation except one who has the cheek to allow others to bear the burden for his lack of payment on time.
Islam is a very practical and understanding religion. It does not wish to see anyone taking advantage of in this way. It requires its followers to be true to their commitment. If you contract to make a payment by a certain date you must not delay payment because you will lose nothing by doing so. In early Muslim era, people honored their word and made their payment on time without waiting for demand. [Now such conscientious attitude is generally missing.] The sooner we go back to their practices the better.
However, the fact remains that people may rescind on their contracts and unless they face some sort of penalty they would delay payment of their financial obligations.
Yet if we add a penalty clause saying that delay after a certain date would incur a further payment and then add another penalty for each subsequent month, you are running very close to the usurious practice when the creditor used to say to the debtor: "Will you pay or debt would increase?" The outcome is the same: Delaying payment in return for an increase of liability.
The way out of all this is to add the penalty clause with the intention of making it only a deterrent against delay. The creditor would be clear in his mind that he will not be taking the penalty for himself, and that he does not want his client to incur it no matter what its sum may be. He is only after getting his money on time, and if it is paid on time, he will be most pleased. He has no wish to increase his money through extending its due date. He is only guarding himself against someone taking advantage of him.
It is also preferable that the penalty specified should be higher than the prevailing rate of interest, so that there is no confusion in any body's mind about its nature. If it is lower than the rate of interest then the debtor may treat it as a cheap way of getting credit.
Now if the customer delays payment, then you have to look at his situation. If he is truly in difficult circumstances, then you have no alternative but to allow him an extension of time. This is the injunction in the Qur'an: "If he (your debtor) be in straits, grant him a delay until he is in a position to discharge his debt." (2:280) But if the debtor is obviously able to repay then he is, by delaying payment, guilty of injustice. The Prophet, peace be upon him, has described such delay as injustice and all injustice is forbidden in Islam. In such a case it is permissible to enforce the penalty clause.
However, the creditor may not take it for himself. We should remember that the whole purpose of the penalty clause is to serve as a deterrent, not to get more money. What the creditor receives in the form of penalty he should pay to some charity or to a poor family. He may not benefit by it himself. If tax is payable on such a penalty, then the tax should be deducted from it before it is paid to charity.
• Traveling every-day and shortening prayers
Our water desalination plant is about 140 km from Jeddah on the Gizan Road. More than half of its staff comes daily from Jeddah. People have expressed different viewpoints on whether to shorten their prayers when they are at the plant and whether to combine Zuhr and Asr together. Please explain.
Although fast cars could cover the distance between Jeddah and this place in little over an hour, still the distance is a bona-fide travel which means that the concessions given to travelers apply to people who travel there from Jeddah, whether daily or occasionally.
When we consider a concession given by God, we must remember that this is something that He has granted in order to make things easier for people when certain elements or factors apply to them.
Going from Jeddah to this desalination plant at Shoaiba qualifies as travel even by our modern standards and fast means of transport. A daily trip is no less valid for the exercise of a concession than a weekly or a monthly one. If we take the distance, then it is longer by at least 50 km than the distances scholars have mentioned as the minimum amount of travel. However, some scholars are of the view that the distance is immaterial, but the actual travel is the thing that counts.
They say that any trip that people consider as travel qualifies for the exercise of the relative concessions. Before the introduction of the modern means of transport, a trip of 20 or 25 km qualified as travel, if it was between two villages or two towns. Covering a similar distance may not be considered as travel if it involves going from one end of the city to another. This opinion has considerable validity.
Any person who travels daily from Jeddah to this desalination plant is considered a traveler. He may exercise all the concessions that travelers have. With regard to prayer, one concession that all schools of thought approve is the shortening of every obligatory prayer consisting of four rak'ahs to two rak'ahs only. The concession of combining the two prayers of Zuhr and Asr or the two evening ones of Maghrib and Isha is also approved by most schools of thought. Some say that it is applicable when needed, while others say that it applies all the time [during travel]. Whichever view you take will have its valid evidence.