In South Africa, by law, petrol cannot be purchased on credit by a fuel retailer. Fuel companies, such as Sasol Oil, BP Southern Africa, Total South Africa etc. can supply Fuel Retailers only on the following basis:
Cash up front / Pre-payment, or
Guarantee issued in favour of the fuel company to act as security against any payment default by the retailer
A guarantee enables the fuel company to grant the retailer a credit facility, allowing the retailer to pay for the fuel after delivery, assisting the retailer in managing his cash flow. This guarantee extends to cover other trade receivables the retailer may be obligated to pay the fuel company for, in terms of their retailer or lease agreement. Trade receivables can include rental of the premises, royalties, rates and taxes, lubricant purchases etc.
There are two common types of guarantees:
Insurance fuel guarantee
This is a guarantee issued by an Insurer as the Guarantor. In this case the Insurer agrees to settle any claim made by the fuel company as a result of the Insured defaulting in his payment.
The ONE Fuel Guarantee, underwritten by Mutual and Federal Risk Financing Limited as Guarantor, is accepted by all the major fuel companies and select wholesalers.
There are times when a fuel company will only accept a bank guarantee. Traditional bank guarantees require 100% cash investment or providing collateral in the form a liquid asset such as fixed property.
The ONE Retailer’s Bank Guarantee solution allows the fuel company to receive a bank guarantee as security whilst the Retailer can provide the Bank with the Insurer guarantee as security for the bank guarantee issued. In other words, existing retailers with bank guarantees already in place, can simply replace the cash that the bank is holding with an insurance guarantee and inject the capital back into the business. Similarly new retailers can provide a guarantee without having to tie up their cash.
ONE has a bank guarantee solution with Absa, FNB and Nedbank, enabling us to solution Chevron/Astron Energy, Shell Retailers and any other Retailer who has a bank guarantee at the fuel company.
The Benefits of an Insurance Fuel Guarantee
Free up capital and boost your working capital with available funds
Reduce interest bearing debt by reinvesting the released funds into your loans, overdrafts etc.
Premium is an operating expense of the business, thus premiums reduce taxable income
Suitable for new and existing retailers
Guarantees can be easily increased should the fuel company require higher securities due to escalating fuel prices