Culture of slow payment impacts cash flow

In the current economic market slow payments are seemingly becoming a trend as cash flows remain under attack, says Lombard Insurance’s Francis Kingston who looks after the company’s general and commercial business related to customs bonds and guarantees required by the likes of Customs, Transnet and the airlines. “We are finding that the biggest reason for our clients not being able to pay is either bad debt or slow payment from their clients. The industry is seeing a trend of payments taking longer. There seems to be a culture developing of slow payments and that has a negative impact on cash flows.” Kingston says while volumes showed signs of increasing last year, the country has not yet returned to pre-recession levels with various factors continuing to pose risk, especially to exporters. “The rand/dollar exchange is especially worrying at present for exporters, but on the other side it is a good environment for importers.” With imports having decreased by 30% during the 2009 recession, the country for the most part weathered the storm very well and seems to be on track for the coming year. “It is very difficult to make forecasts at present but we believe that 2011 will not see great strides of recovery. It will in all probability be another year of slow growth, while we could see a more positive trend in 2012.” Kingston says South Africa will have to address some very important issues in the coming months such as the risk of strikes. “The Transnet strike in mid-2010 had a very damaging effect on companies. The risk of strikes at our ports impacts everyone negatively.” He says that freight forwarders concentrating on niche markets seemingly did much better in 2010 than those companies doing more general work. “The face of business has changed dramatically in the past few years and it is not business as usual. Getting money from financial institutions is more difficult as the criteria have become tougher,” says Kingston. “Some industries are doing exceptionally well. The demand for raw materials for instance is not easing up despite the weak dollar and agents in this business are doing very well just on pure volumes. We must address the infrastructure though as well as our rail capacity if we want to do even better.” Kingston advises clearing and forwarding agents who are at risk to have their debtors’ books insured as it does reduce the risk of not being able to pay. If you don’t manage debtors, he says, they will begin to manage your business resulting in reduced cash flow – something to be avoided at all costs.”