Fuel Retailers Insurance in South Africa

Fuel Retailers Insurance basically means the fuel retailer can use the insurance company as a guarantor when buying fuel.

 

Fuel Retailers Insurance - where the insurance
company is used as the 'Guarantor' 
 
 
 
 
  Need Fuel Retailers Insurance Assistance
 
 
 

Due to the nature of the fuel business and the high cost of holding stock, cash flow is one of the keys to the success of your business.

The business needs to generate enough revenue to meet daily, weekly and monthly expenses, and at the same time maintain stock levels to ensure uninterrupted trading in accordance with the fuel companies’ requirements. The retailer thus needs sufficient working capital to meet the demands of large fuel payments.

In order to do this, the retailer either takes out a large loan or provides an adequate overdraft facility. The need for a bank guarantee is over and above these requirements.

Without a guarantee, the retailer effectively trades on a ‘hard cash’ basis. Revenue needs to be in the account prior to payment for fuel, and delivery is only scheduled subsequent to payment. This working capital required is costly.
In the event of a bank guarantee being issued, the retailer can enjoy the benefits of ACB payment for fuel, after delivery. This adds several days deposits to the bank account improving cash flow considerably, but the bank guarantee is also costly to the retailer in terms of opportunity costs of having such funds available in the business.

In today’s industry where guarantee values requested are reaching levels in excess of R1 million, it makes more sense to use the insurance guarantee, as opposed to tying up excessive cash in providing a bank guarantee. With the introduction of an insurance type product, the fuel guarantee alleviates the need for a cash on demand guarantee and allows the service station owner to utilise his or her capital where it is best required – in the business! Having more capital in the business can improve the cash flows further and reduce any loan risks or trading risks.

Typically the cover kicks in when the debit order is unpaid and the fuel company cannot collect the amount due by the retailer. It may also cover rental, lubricants, or trade receivables bought on credit.

There are a few product options you may consider in the market place. These options may be confusing...

In fact, the smartest thing you can do is -- Get a specialist broker to do it for you!
 

Also, note the following guidelines, tips and considerations applicable to Fuel Retailers Insurance:
  • The Fuel Company normally stipulates the value of the guarantee required.
  • This is usually approximately two full deliveries value and dependent on the tank capacity and sell-off volume of the business.
  • The guarantee can also be used to increase existing guarantees, or replace the entire guarantee.
  • No assets are normally required as collateral security – unsecured.
  • Payment for fuel via ACB debit instead of pre-payment – cash flow benefit Monthly premium. Premium written off against taxable income.
  • If you are a new retailer, it reduces your capital requirement as the bank guarantee investment is removed from overall set up cost.
  • Existing bank guarantees can be replaced in order to free up assets.
  • Existing bank guarantees can be topped up – if insufficient.
  • Retailers trading on pre-payment basis can easily move onto ACB without impact to their cash or assets base.
  • Opportunity cost.

Without Fuel Retailers Insurance, the retailer
trades on a 'hard cash' basis
 
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