The logistics and freight forwarding sectors have become the lifeblood of the South African economy due to operational challenges faced by state-owned rail and port operator Transnet. Yet, despite its critical role in driving the economy forward through the import and export of the strategic goods and minerals needed to support markets and build infrastructure in the country, the local logistics and freight forwarding sector faces numerous challenges.
Optimise your working capital by bringing forward the cash due on your debtors book.
Partnering for growth, a successful story of partnership with Investec
A leading Mpumalanga-based logistics company, which operates one of the biggest trucking fleets in the country, saw top line earnings triple in three years through accessing growth funding, “Accessing the Investec Debtor Finance facility increased the client's facilities from R40m to R90m over the last three years,” explains Lunga Qegu, Head of Sales Development at Investec For Business.
The client invested this working capital to increase its fleet size from 75 to 200 trucks, which enabled the company to take on more business. “As a result, the client has grown top-line earnings from R367 million to R979 million in the last three years, with their profit after tax growing exponentially from R16m to R100m over the period,” continues Qegu. These operational and financial benefits would not have been feasible if not for a tailored product that allowed the client quick access to funds when the opportunities presented themselves.
“The nature of the product allows us to offer a higher level of funding and quicker turnaround times on facility increases. In a sector where other banks offer an unlock of 50–60%, Investec typically provides 75% to 85%."
By providing more efficient and expedient access to larger funding lines is the perfect combination needed to keep driving operators in the local road freight forwarding and logistics sector forward,” says Qegu.
Freight and logistics pain points
According to the Southern African Association of Freight Forwarders (SAAFF), the industry continues to grapple with factors related to rising input costs, port inefficiencies, poor infrastructure, and long average cross-border queue times, with the median road freight border crossing times at South African borders averaging 10.8 hours, compared to 4.8 hours for the greater SADC region.
Access to finance is another critical factor that can create operational challenges and constrain growth for operators, who often turn to conventional offerings like overdrafts to access working capital. These financial products are typically administratively onerous to access, with inherent limits to the funding available.
“These deficiencies can hamper an operator's growth, as concentration limits and equity cover ratios can prevent them from taking on big new contracts as they cannot offer 30- and 60-day terms,” explains Qegu.
These businesses require bespoke commercial lending solutions that take a holistic view of the business, looking beyond numbers and financial statements to understand the unique operational requirements and provide a tailored solution that aligns with the specific business requirements and optimises the working capital cycle.
“We understand that running a company is challenging but by providing the right funding at the right time, we empower our clients to capitalise on opportunities and optimise their ability to grow profits,” adds Qegu
Tailored Debtor Finance solution
Debtor finance is a form of bespoke asset-based lending that caters for greater headroom limits to right-size the loan to unlock funding in line with the growth of a client's qualifying asset base to meet their unique requirements.
“Debtor finance gives freight and logistics operators the ability to unlock additional funding using their debtors book to advance the cash due, to increase liquidity for working capital,” elaborates Qegu.
By leveraging a calculation that takes into account the quality and composition of the available asset base and linking this to business growth and historical trends, Investec determines available funding according to future due receivables.
“Our innovative solution is simpler than invoice discounting and requires less admin.. The capital is also made available sooner, which relieves the opportunity cost of having cash tied up in debtors and stock.”
The solution offers other benefits, such as fund cyclicality, which helps maintain operating cash flow in line with business cycles or seasonal operations, with the ability to blend revolving and term debt facilities to optimise the working capital mix for short-term and longer-term growth requirements.
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