By Eamonn Ryan
In South Africa’s heating, cooling, air‑conditioning and refrigeration (HCAV&R) sector, trade credit is often treated as a sales tool. In reality, it is one of the biggest financial risks – and opportunities – on your balance sheet.
At the same time, your customers are facing their own pressures. Higher interest rates increase their debt servicing costs.
Lifeforstock | Magnific.com
Most businesses in this sector sell capital‑intensive equipment and project‑based services into highly competitive markets: contractors bidding on tight margins, end‑users under cost pressure, and long installation or maintenance cycles where cash rarely arrives as quickly as the invoice goes out. To win work, suppliers routinely offer 30, 60 or even 90‑day terms. Over time, that creates large debtor books which behave, economically, just like a loan portfolio.
This matters even more in the current interest‑rate environment.
When the South African Reserve Bank holds rates at elevated levels to control inflation, it directly raises the cost of financing your debtor book. You may not be charging explicit interest, but the money “trapped” in receivables still has a cost. A simple rule of thumb is that every 30 days of credit can cost around 1.5% once you factor in interest rates, inflation and the opportunity cost of having that cash tied up instead of reducing overdrafts, funding stock or negotiating early‑payment discounts with your own suppliers.
Consider what that means in practice. If a R1-million project runs 60 days over agreed terms, and your effective annual cost of capital sits in the high teens, the erosion of value is measured in tens of thousands of rand – on a single job. Multiply that across multiple contractors, projects and sites, and the drag on profitability and liquidity becomes material.
At the same time, your customers are facing their own pressures. Higher interest rates increase their debt servicing costs, fuel and electricity prices squeeze operating margins, and municipal and infrastructure problems add unpredictability to project planning and cash flow. In that environment, “which supplier can I delay?” becomes a survival question for many businesses. If your credit policies are loose, your follow‑up is weak, or your leverage is limited, you are more likely to be the one they push out.
