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32.
FINANCIAL INSTRUMENTS
(continued)
32.2
Credit risk
(continued)
The group has a general credit policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate,
as a means of mitigating the risk of financial loss from defaults. In accordance with the decentralised structure, the operational management,
under the guidance of the divisional management, are responsible for implementation of policies to meet the above objective. This includes
credit policies under which new customers are analysed for creditworthiness before the operation’s standard payment and delivery terms
and conditions are offered, determining whether collateral is required, and if so the type of collateral to be obtained, and setting of credit
limits for individual customers based on their references and credit ratings. Certain operations in the group have a policy of taking out credit
insurance to cover a portion of their risk. Operational management is held responsible for monitoring the operations’ credit exposure.
32.2.1 Trade receivables
Refer to note 20 for further disclosure.
Trade receivables consist of a large number of customers spread across diverse markets and geographical areas. Ongoing credit evaluation
is performed by the operational management on the financial condition of the operations’ customers.
The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics. It was noted that the group’s largest exposure to a single customer group, across multiple geographies is R556 million
(2015: R494 million). Management, in the various geographies, has assessed the recoverability of these amounts due in its geographies, and
believes that the amounts due and not impaired are recoverable in full.
The total number of debtors per reporting division was obtained and the average turnover per trade debtor was calculated for each reporting
division. Based on the average turnover per trade debtor in comparison to the group’s total turnover for the year, there was no significant
concentration of credit risk to any single trade debtor. The concentration of credit risk is therefore limited due to the customer base being
large and independent.
As a function of the decentralised structure, each operation establishes an impairment allowance that represents its estimate of incurred
losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to
individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have
been incurred but not yet identified.
The review of the impairment allowances in respect of trade and other receivables is monitored under the oversight of the divisional audit
committees, and ultimately the group audit and risk committee. The operations’ average credit periods depend on the local trends as well
as the creditworthiness of their customers. The majority of the customers are given credit terms ranging from cash on delivery to 60 days
from statement. The largest impairment raised for a specific trade receivable was obtained for each reporting operation and calculated as a
percentage of the group’s total impairment allowance. It was determined that such percentage did not exceed 2,3% (2015: 2,6%) of the total
allowance raised at year-end.
Notes to the consolidated financial statements
for the year ended June 30
Page 104
| Bidcorp Limited Annual integrated report 2016