The Civil Engineering Contractor March 2019 | Page 31
FEATURE: FINANCE
an umbrella when it’s dry and takes it
back when it rains’.
It offers debtor finance and funding
according to the balance sheet of the
business. “Among contractors, the
upper tier [bigger contractors] don’t
have issues with working capital
because they have much easier access
to shareholder and bank funding
compared to contractors that are in
the mid- and lower tiers. You find
that mid- and low-tier businesses’
balance sheets don’t support
borrowing because they don’t have
sufficient equity nor collateral,” says
Latchigadu.
Among mid- and lower-tier
contractors, there are alternative
lending options that look less at the
business’s balance sheet and more
at a specific contract and collateral
in the form of plant and equipment
or the company’s debtors’ book.
“For instance, we could provide a
contractor up to 80% of its receivables
upfront — instead of it waiting 30,
60, or 90 days for payment,” he adds.
That freed-up working capital can
then be employed on the next project,
instead of being tied up.
“When we look at funding the
lower tier [including SME and start-
up BEE contractors], we understand
that there’s two ways to look at their
working capital. Firstly, it has to buy
materials at the commencement
of a project before the contractor
is ever paid; secondly, there’s job
execution, involving other expenses
such as wages; then it raises an invoice
and typically only after 60 days does
the contractor get paid. Our offering
provides support from the time of
purchase of raw materials. Trade
finance facilities release working
capital in order to purchase raw
materials, and by doing so allows the
contractor to execute the job while
tendering for future work. Finance is
secured by the actual stock, and Sasfin
controls the payment throughout
the contract.
“The trade finance facility is secured
by a general notarial bond lodged over
the material (stock) and sureties. We
also ensure payment is made directly
to suppliers by requesting that the off-
taker or debtor pays into our account.
It’s a fully disclosed transaction. We
don’t pay any cash to the contractor,
but rather settle its financial obligations.
This ensures money doesn’t go where
it isn’t supposed to. So, when the
debtor pays, we take what is owed
to us and the profit goes to client,”
he shares. nn