To be successful, most organisations need to sell on credit. But this carries with it a number of critical challenges, cash flow management and bad debt minimisation.
Generally, organisations will look to banks and factoring companies for assistance with cash flow management and credit insurers to assist with bad debt minimisation.
Although banks or factors can facilitate cash flow management, it can be costly and does not always protect companies from bad debts. And credit insurance, although substantially cheaper than factoring, will take five months or more to pay out on an overdue account.
"In the event of an insolvency, a credit insurer will pay out within 30 days of receiving the necessary information. In most large organisations this is generally satisfactory.
"In most cases, however, the account will already be a number of months overdue before insolvency occurs. If insolvency does not occur, the supplier will have to wait more than five months before being paid out by the credit insurer. The delay in payment can place an enormous cash flow strain on a company, especially in small to medium-sized enterprises," says Coface executive director Michael Creighton.
"Coface South Africa has recognised the need to support positive cash flow practices, especially in the area of medium-sized enterprises," he says.
Now in a first for South Africa, outstanding debts covered by Coface South Africa can be paid within 30 days from the handover of a delinquent debtor to Coface. This gives the creditor the ability to generate the cash flow a lot earlier than it would under a standard credit insurance product.
"Coface South Africa will, on average, provide payment four to five months quicker than any other traditional credit insurance policy. In this period the client will also benefit from the international collection expertise of the Coface Group.
"This is the first credit insurance product in South Africa that truly helps clients minimise their bad debts while simultaneously protecting their cash flow," says Creighton.
In addition, Coface ZA has built-in procedures to ensure that the overdue account is collected sensitively and that there is no overreaction to short-term delinquencies.
"It is important to Coface ZA that our client is able to continue to trade successfully with the debtor after the temporary `hiccup` has been resolved," says Creighton.
"Overall, this facility has never been available before in South Africa, where payment is made so quickly. It is an inexpensive instrument to bridge the gap between a loss and realisation of profit, protecting the company`s return on capital," he says.
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