BUSINESS FLEET AFRICA | October 2022
WWW.BUSINESSFLEETAFRICA.CO.ZA
The running of a transport business in
South Africa very often sees operators
working with extremely fine margins
and in order for these businesses to
remain profitable management needs to
constantly evaluate the vehicle financing
options that are available to fleets and
operators.
“External and internal factors are
always changing, so the best way for a
particular business to pay for their mov-
able assets, including trucks and trailers
might not be the same way that they did
it a few years ago,” says Derick de Vries,
Executive Head of Standard Bank Fleet
Management.
New vehicles and trailers are expen-
sive purchases and with interest rate
increases now a common occurrence
it is vitally important for transport
operators, purchasers and business
owners to have a thorough understand-
ing of the various ways of financing
these assets.
A lack of expertise regarding the
various financing options will often see
operators delay the acquisition of new
vehicles, simply out of fear of making
the wrong decision, which more often
than not leads to operators being left to
utilise outdated and unreliable equip-
ment, which could have a detrimental
effect on safety, employee wellbeing and
even your bottom line.
Outright purchase
An outright purchase is the most basic
way of financing an asset. It comprises
utilising cash reserves or funding raised
by other means to buy a vehicle. This
offers numerous advantages including
freedom to choose suppliers or to
negotiate better discounts as well as a
lower overall purchase price, with no
monthly fees or interest rates payable.
Buying equipment outright means
that you are not tied into any specific
ownership period and can buy and sell
vehicles as operational requirements
change. In addition these vehicles can
be added to the balance sheet as an
employed asset.
The disadvantages of this method
will most probably include a reduction
in working capital as well as possible lost
opportunities to invest cash elsewhere
and it will be your responsibility to
dispose of the vehicle via sale or auction
when the time comes to upgrade.
Instalment sale
Historically, especially in South Africa,
instalment sales have been one of
the most popular ways of paying for
vehicles.
The advantages include that a rela-
tively small upfront payment in the form
of a deposit is required and then the
revenue generated by the vehicle can
very often cover the monthly payments.
The interest rates can in many cases be
fixed for the full period of the agreement
or floated against factors such as the
prime lending rate.
Choosing an instalment sale allows
immediate use of the vehicle and
ownership is transferred once the final
instalment has been paid.
Understanding various
financing options
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