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