Business Money Research

Representing Working Capital

Working capital (WC) can be represented as follows:

Working Capital = Current Assets – Current Liabilities

It can be said that WC measures a company’s efficiency as well as their short-term financial health (Investopedia, n.d.).

A company should always have a positive WC value. If there are less assets than there are liabilities then this means that the company is unable to repay all of their liabilities, this should be considered a “red flag” when assessing the financials of a business (Investopedia, n.d.). It should also be compared with previous WC amounts to assess a decline in profits/sales and should also be cause for concern (Investopedia, n.d.).

Management of Stock-in-trade:

It is important to consider the costs behind holding and not holding your inventories (stock-in-trade). Holding stock incurs costs such as storage space, insurance, loss of interest on the cash used to purchase stock as well as the potential losses in the case that stock becomes obsolete (Atrill & McLaney, 2011).  On the contrary, not holding stock on hand poses risks of losing sales, reordering costs, production being slowed down, and potential time critical opportunities for large quantities of stock being missed (Atrill & McLaney, 2011).

Companies should therefore manage their inventories wisely. When managing inventories a company should identify the most efficient amount of stock to be ordered by using assessment models and methods to find out the best frequency and quantity to order stock, it is important to keep accurate inventory logs so that historical data can be used in this (Atrill & McLaney, 2011), taking into consideration future forecasts of required stock.

“Just in Time” (JIT) inventory management can also be considered (Atrill & McLaney, 2011). JIT is used by most online stores today and, as the name implies, stock is ordered or re-ordered only when it is needed (often after the purchase has been made in the scenario of online stores).

Management of Trade Debtors:

This can also be referred to as “trade receivables”. Careful consideration should be made when deciding which customers should receive credit. Atrill & McLaney (2011) outline the 5 C’s of credit, as explained by Investopedia (2011):

1)     Character – The reputation of the borrower (eg: via credit check)

2)     Capacity – Compare the borrowers income to their recurring debts to work out their capacity to repay more debt

3)     Capital – Consider the amount of capital (deposit) the borrower is going to put down on the purchase, the higher the deposit the less chance of default.

4)     Collateral – Does the borrower have collateral (eg: property) that can be used to recover bad debt.

5)     Conditions – Interest rates and the term of repayment should also be considered.

The costs behind giving credit are also a factor. These are costs such as losing interest from having cash on hand in investments, as well as the lost purchasing power due to the lack of cash on hand, administration costs for maintaining customer accounts and the additional costs involved in vetting potential trade debtors must also be considered; perhaps the biggest concern would be the risk of bad debts (Atrill & McLaney, 2011). If potential clients are refused credit then the potential of a poor reputation, or losing clients is also there.

All of these above issues should be carefully evaluated and policies on all possible risks and situations as well as contingency plans should be drawn up to maintain trade debtors.


When managing cash it is important to evaluate the benefits behind keeping cash on hand as well as the best amount of cash to keep on hand. If cash is on hand, the company is losing out on interest that could be gained from the cash being in investments, also, purchasing power due to bank statements reflecting a lower balance (Atrill & McLaney, 2011).

The potential losses from not having enough cash on hand can be that of losing “supplier goodwill” (Atrill & McLaney, 2011) if there are not enough funds to keep up to date on payments. As well as missed opportunities for purchasing in cash and receiving cash discounts. Another major issue to consider is the cost of borrowing money needed (interest charged) if there is not enough cash on hand.

As with trade debtors, it is important to plan, using historic records to base your plans on. Make contingency plans and policies and find the lowest source of funding if needed (overdrafts etc.).

Trade Creditors

Also referred to as “trade payables”, is the amount of credit the company itself has (for purchasing inventories etc.) Costs to consider when managing trade credits are that of purchases on credit generally being of a higher cost than purchasing in cash (due to interest, or just simply a higher price); additional administration costs are also required to manage trade creditors for the company (Atrill & McLaney, 2011).

Trade credit can also favour the company as some suppliers may allow for borrowing without charging any interest, some suppliers may also require the company to have credit (or at least, be “credit worthy”) to be able to get discounts or be able to make large orders (helps build goodwill) (Atrill & McLaney, 2011).

As with the previous areas it is important to develop policies and plans around trade creditors. If the company is able to get interest free credit then they should take advantage of this to increase cash flow in the business (Atrill & McLaney, 2011).


Accounting ratios should be used where ever possible to help evaluate and assess the best possible option in managing working capital.  The working capital ratio can be used to calculate the efficiency of a company when it comes to managing stock in trade, trade debtors and creditors (, n.d.) – the calculation is as follows:

Working Capital Ratio = (stock-in-trade + trade debtors – trade creditors) / sales (n.d.) give an example that if the ratio is 0.20 then that means that the company requires 20p (cents) of working capital for every 1GBP of annual sales, which can be put as : “If annual sales increase by £100,000 of then the company will have to invest £20,000 in working capital to be able to meet this.”.


Atrill, P. & McLaney, E. (2011) Accounting and Finance for Non-Specialists. 7th Edition. Prentice Hall.

Investopedia (n.d.) 5 Cs of Credit [Online]. Available from: (Accessed: 30 April 2011).

Investopedia (n.d.) Working Capital [Online]. Available from: (Accessed: 30 April 2011). (n.d.) Working capital [Online]. Available from: (Accessed: 30 April 2011).

Business Money Research

Methods for investment appraisal

Atrill & McLaney (2011, p.358) describe the four main methods of investment appraisal to be:

1)     Accounting Rate of Return (ARR)

2)     Payback Period (PP)

3)     Net Present Value (NPV)

4)     Internal Rate of Return (IRR)

It is noted that companies do have variations on the above but these are the main methods used. Details of the four methods are as follows:

1)     Accounting Rate of Return
Atrill & McLaney (2011, p.359) explain the ARR method to use the two main pieces of information.

  1. Annual average operating profit
  2. Average investment

The equation to calculate the ARR is as follows:
ARR = Annual average operating profit / Average investment (to achieve profit) x 100%

The company should decide a minimum target ARR and base their decisions upon projects achieving an ARR of that minimum percentage or higher. If there are numerous projects that meet the required minimum, the one with the highest ARR should be selected (Atrill & McLaney, 2011, p.360).

The main risk with using ARR is that it does not take into consideration the time factor for return on investment (Atrill & McLaney, 2011, p.362). If three projects have an equal investment and projected return a fixed period of time, they will all have the same ARR; but if one of those projects covers its investment costs within 1 year and the other only after 4 years, project 1 should be the clear winner.

The second major flaw in the ARR method is that ARR is based on Accounting profits rather than cash profits. As explained in an example by Atrill & McLaney (2011, p.362); if an asset has a residual value at the end of life of the project, giving it away rather than selling it allows for a higher ARR (Average Investment = Cost of Asset + Residual Value).

2)     Payback Period

This calculates the amount of time that is required for a project to repay the initial investment amount out of its resulting cash inflow (Atrill & McLaney, 2011, p.364).

Companies should base their decisions when using PP on a predefined maximum time limit for projects to repay their investments, the project with the shortest projected time to repay initial investment should be chosen (Atrill & McLaney, 2011).

The flaw with this method is that it doesn’t consider the amount of cash flow in the period it takes to repay the investment. As per Atrill & McLaney’s example (2011, p.366) if project A B and C repay an investment in the exact same amount of time (3.5 years), but project C repays almost all of the investment in the first year while project B and A in the late 2nd and 3rd respectively, project C should be the clear winner. Also, it does not consider the cash flows after the initial investment has been reach, it concentrates on high initial returns which lends itself to a more negative idea that the project is going to fail so the money must be recouped as soon as possible. If project A gives twice as much return as project C after the third year then that should be strongly considered as a better option.

3)     Net Present Value

The NPV method allows us to make a decision based on all of the costs and benefits as well as the exact timings in which they occur (Atrill & McLaney, 2011, p.368).

To put it simply, NPV compares the value of the invested currency today and compares it with the value of that invested currency in the future, also taking into consideration inflation and returns (Investopedia, 2011).

Value Based Management (n.d.) describes the steps to calculating NPV as follows:

1)     Calculate expected free cash flows per year as a result of the investment

2)     “Subtract/discount for the cost of capital (an interest rate to adjust for time and risk)”
This intermediate result is called the Present Value

3)     Subtract initial investment amounts

This end result is the Net Present Value

Companies should consider projects with a positive NPV,  negative NPV’s should be rejected and the project with the highest positive NPV should be chosen when faced with multiple projects.

The problem with NPV as explained by Value Based Management (n.d.) is that it does not account for flexibility or changes / uncertainty after the decision has been made to proceed with the project.

4)     Internal Rate of Return

This method is closely tied with NPV. IRR uses the method of discounting future cash flows from an investment but it produces the discount rate at which an NPV value of zero is achieved (Atrill & McLaney, 2011, p.379). It is noted that IRR is difficult to calculate as it involves trial and error to get the value down to 0.

IRR can be thought of as “the rate of growth a project is expected to generate” (Investopedia, n.d.).

Investopedia (n.d.) explains that generally a project with a higher percentage IRR is more desirable than one with a lower percentage IRR. The project that yields the highest percentage IRR is the project that should be considered first.

The flaw with IRR is that it does not take into consideration the scale of development (Atrill & McLaney, 2011, p.383), basically an increase in investment can increase returns yet give us the same percentage. Another issue is that it does not cater for fluctuations in cash flows. With a fluctuating cash flow, multiple IRR’s or none at all may be the result (Atrill & McLaney, 2011).

Atrill & McLaney (2011, p.383) mention that NPV overcomes the flaws of IRR and out of the 4 options outlined above I would also tend to lean towards NPV as being the best method of assessing a risky investment because it gives us closer to real world values of our returns on a project. I believe it is very important to consider that even if we are getting a positive return when projecting, what would that amount really equate to in the time frame that it is being returned, with inflation and rising labour costs it wouldn’t be wise to exclude them from your assessments.

That being said, as Atrill & McLaney (2011, p.388) point out, companies use combinations of the above 4 methods to evaluate investments and I would consider using NPV and IRR and PP when considering an investment.


Atrill, P. & McLaney, E. (2011) Accounting and Finance for Non-Specialists. 7th Edition. Prentice Hall.

Investopedia (n.d.) Internal Rate of Return – IRR [Online]. Available from: (Accessed:

Investopedia (n.d.) Net Present Value – NPV [Online]. Available from: (Accessed: 30 April 2011).

Value Based Management (n.d.) Net Present Value Method [Online]. Available from: (Accessed: 30 April 2011).

Business Money

Cash Flow Statements

A cash flow statement (or statement of cash flows) shows a fairly detailed description of the movement (or flow) of cash over a period of time. The cash flow statement includes with the cash flows from operating activities, investing activities, financing activities and provides the cash and equivalents total for the end of the reported period.

There are two methods of measuring the cash flows from operating activities

Direct Method

This is the simplest, yet the least used method. The requirements are simply to add up all the payments and receipts over the reported period to give a total that reflects on the cash flow statement.

Indirect Method

This method is the more popular method and is based on the principal that the sales revenue increases cash inflow while expenses increases cash outflows. “The indirect method adjusts net income for items that affected reported net income but didn’t affect cash” (Anon, n.d.)


ABC Limited reported a revenue of $ 1 000 000 at the year ending 31 December 2010. The income statement reflected a $ 140 000 tax payment and a Net Income of $ 34 000. Accounts receivable increased by $ 200 000; therefore cash collected on the revenue is $ 800 000 ($ 1 000 000 – $ 200 000). ABC Limited reported operating expenses of $ 825 000. Accounts payable (operating expenses) was reported as being $ 45 000; therefore cash operating expenses were $ 780 000 ($ 825 000 – $ 45 000). Tax payable at the end of the year was reflected as $ 0.00 which means the income tax payment was made during the year in cash.

Direct Method

Cash collected from revenues                                                   800 000
Cash payments for expenses                                                     780 000
Income before income taxes                                                            20 000
Cash payments for income taxes                                            140 000
Net cash flow from operating activities                                     (120 000)

Indirect Method

Net income                                                                                           35 000
Increase in accounts receivable                                         (200 000)
Increase in accounts payable                                              45 000         (155 000)
Net cash flow from operating activities                                    (120 000)

We can see that both methods result in the same net cash from operating activities. While direct looks directly at the cash in hand the indirect looks more at the income statement and uses trade payables and receivables to work out the cash flow from operating activities.


Anon (n.d.) Cash Flow Statement Example-Direct and Indirect Method [Online] Accounting for Management. Available from: (Accessed: 16 April 2010).

Atrill, P. & McLaney, E. (2008) Accounting and Finance for Non-Specialists. 6th Edition. Financial Times Press.

Business Law Money Research

Liability, Tax and Financial Reporting Requirements in South Africa

Legal Entity

Limited companies are, by law, legal entities that have a (perpetual) life of their own, irrespective of the owners/shareholders of the company. As stated by Atrill & McLaney (2011), this means that the company itself can be sued, or can sue another person/entity in its own capacity, irrespective of the owners. This is in direct contrast with sole proprietorships where, unlike the accounting (where the owner and the business is separate), the owner and the company are legally treated as the same entity, therefore the owner is the one who is liable if any legal issues arise.

Limited Liability

Perhaps one of the most important features of a company is that the shareholders of the company have a liability that is limited only to the equity (shares) they have in the business. If the company has a large outstanding debt which it is unable to repay, by law only the assets/equity the business itself owns can be liquidated to repay the outstanding amount, and the shareholders are not liable for any repayment in their personal capacities. Again this is in direct contrast, as mentioned above, with sole proprietorship where the sole proprietor themselves would be liable for any bad debts in their personal capacity and therefore even their “non-business” assets may be liquidated to fulfil debt payments.


Due to the two points mentioned above, a limited company therefore must be taxed as an entity. Most countries have separate taxation percentages for legal entities. These taxes are charged to the company and this does not exempt shareholders from their personal tax requirements, for example; receiving a dividend pay-out from the already taxed profits does not mean the shareholder doesn’t have to pay tax on the dividend pay-out as the dividend pay-out is a taxable income to them personally, the tax the company has paid is for the company.

South Africa – Accounting and Financial Reporting

South Africa currently has limited companies as well as another form of entity called a close corporation. Closed corporations are much easier to incorporate than regular companies and do not require full accounting audits, but have a number of other limitations compared with regular limited companies which are represented by (Pty) Ltd (eCompanies, n.d.). Close corporations in South Africa have, however, been phased out as of this year.  Regulations for limited companies in South Africa, as mentioned, require the financials to be audited by a firm of Chartered Accountants.  With effect from July 1, 2010, a new legislation amendment has been made to the companies act that states financial reporting standards “must be consistent with the International Financial Reporting Standards of the International Accounting Standards Board” (eStandardsForum, 2009).


Atrill, P. & McLaney, E. (2011) Accounting and Finance for Non-specialists. 7th Edition. England: Pearson Education Limited.

eCompanies (n.d.) What is a close corporation? [Online]. Available from: (Accessed: 16 April 2011).

eStandardsForum (2009) South Africa – International Financial Reporting Standards [Online]. Available from: (Accessed: 16 April 2011).

Business Money Research

Accounting conventions and their effects on financial position

Balance Sheets

This report can also be referred to as “The Statement of Financial Position” (Atrill & McLaney, 2008). It shows a “snapshot” of the businesses financial position, it is important to remember that the balance sheet only reflects for the date on which it was prepared; it is not highly unlikely that dates before and after may be significantly different. The details on the Balance sheet include a value listing of the current assets (items equitable to a monetary value with an expected conversion to the proposed value within 12 months), the non-current assets (the same as current but with an expected conversion to monetary value that is over 12 months), versus the liabilities (items that the business owes money on, such as loans and stock purchased on credit; both current and non-current) and equities (amounts paid in to the business by the owners as well as the profits generated by the business).

As the name states, the balance sheet should always balance so that the Total Assets = Total Equity + Total Liabilities.

Accounting Conventions – Effects on Measuring & Reporting Financial Position

There are a number of different accounting conventions that can change the appearance of a company’s financial position which are outlined by Atrill & McLaney (2008) and can be summarised as follows:

  • Business Entity Convention:
    Whether a business is a sole proprietorship or a partnership, or any other kind of business, the business always exists as its own entity with its own finances. If the business owner invested $ 50 000 in to the business then that is considered as an amount the business “owes” the owner.
  • Historic Cost Convention:
    This convention specifies that the costs of assets are to be recorded and maintain the original cost value throughout their lifetime. The purchase of a vehicle which depreciates fairly rapidly and the cost of property which appreciates will be recorded at the original purchase price. In these two situations the financial representation can be biased either positively or negatively respectively.
  • Prudence Convention:
    This convention is used to avoid over-optimistic projections by managers and directors. All possible losses are recorded once and in full while the profits are only recorded once they actually happen. This is a somewhat bleak outlook on financial position and may end with investors placing a lower value on their investments into the business than the true value.
  • Going Concern Convention:
    This convention has a more positive view than the prior convention. The assumption is made that the business will not be closing in the foreseeable future. Values are taken as current. The issue that arises with this convention that is if the company is to close, assets being sold off will more than likely be sold for less than their reflected value.
  • Dual Aspect Convention:
    This convention keeps with the concept of the balance sheet. Each transaction has a positive and negative effect on the balance sheet and should be recorded as so in the relevant categories. This assures the balance sheet will always balance.

Asset Valuation – Effects on Measuring & Reporting Financial Position

Asset valuation can be measured in different ways. One of the ways as mentioned above is the historic cost method where an asset is valued at its original cost to the business. As with the example above, it is important to keep an accurate record of the depreciation (decrease in value, such as with motor vehicles) and/or appreciation (increase in value, such as with property) recorded to maintain a more accurate measurement of the true values.

“Fair values” may also be used to measure an assets worth. This can be the assessed value of replacing or selling the asset as opposed to the depreciated or appreciated value of the asset. Fair value is often open to much debate and is more difficult to pin-point than appreciated or depreciated values.


Atrill, P. & McLaney, E. (2008) Accounting and Finance for Non-Specialists. 6th Edition. Financial Times Press.

Business Money Research

Finance, Financial Accounting and Management Accounting


Atrill & McLaney (2008) describe Finance (also referred to as financial management) as being something likened to accounting rather than accounting itself. Atrill & McLaney (2008) go on to describe finance as existing to aid decision makers on how to plan a business, by assessing the needs of the business and organising the finances to suit these needs (being simply to make investments for good returns, or additionally numerous other arenas where financial needs must be assessed).

Financial Accounting

Atrill and McLaney (2008) outline Financial Accounting quite thoroughly and it can be summarised as the following: Financial Accounting is predominantly produced to summarise the overall financial standing of a business in a formal, regulatory defined format for public view (eg: investors/potential investors, governments, general employees, suppliers, competitors etc.). Financial accounts are usually prepared out of necessity once (in some cases twice) per year and are often a requirement by many countries tax laws.

Management Accounting

Atrill and McLaney (2008) describe how, as the name suggests, this form of accounting is used by management in a company and are often used to aid in specific decision making requirements (such as new purchases, new investments, etc.). Management accounts are mostly tailor-made both in format and in financial area to best suit the requirements of the specific manager and specific task at hand.

Similarities and Differences

Finance itself is a broader outline of the processes involving finance in a business, which is arguably the most important aspect of a business. Finance itself would encapsulate the latter two of the above definitions.

As described above, Financial Accounting provides predefined forecast on how a business has been running, financially, in the past period; which, as Atrill & McLaney (2008) point out, can also be used to forecast future performance. Management Accounting is predominantly used for projections or forecasts on new ventures or current ventures that a business is partaking in and are generated if and when they are required by management, rather than at predefined times as required by regulatory bodies.

To conclude, “management accounting seeks to meet the needs of the business managers and financial accounting seeks to meet the needs of the other user groups” (Atrill & McLaney, 2008).


Atrill, P. & McLaney, E. (2008) Accounting and Finance for Non-Specialists. 6th Edition. Financial Times Press.

Business Money Research

Competitors are not enemies

A competitor can be defined as “Any person or entity which is a rival against another. In business, a company in the same industry or a similar industry which offers a similar product or service.” (, n.d.). The word compete brings to mind some form of an enemy who is there to defeat you or to be defeated by you. In the business world, as we can see by’s definition above, it’s not a far stretch to come to the conclusion that competitors can be beneficial to both sides of the collaboration if they choose to be involved with one another.

Many companies, as with people, have different areas in which their talents shine. If we refer to Hamel, Doz and Prahalad (1988) they refer to General Motors buying cars and components from Korea’s Daewoo and Siemens buying computers from Fujitsu. Their article describes particularly the skill of the Japanese manufacturers with the American capability for distribution. Also, they go on to make quite a valid point, in fact these collaborations are, most of the time, complex outsource arrangements.

In the industry I am working in, there is a vast amount of collaboration between competitors, without which I don’t believe the industry would be able to produce the level of advanced systems that they are currently producing.

To put it in to terms of the web development industry, which is the industry I am involved in, I deal with competitors almost daily. If a client comes to me and wants an aesthetically pleasing extranet or intranet system for their company I will outsource the design to my outsource partners who, themselves also offer development services. Once the designs are mocked up I will then outsource the conversion of the design images in to xHTML with my front-end scripting partners and then I will do the system programming in-house. The same situation goes the other way, many of my clients are web development agencies that outsource the more complex programming requirements to myself.

The cohesion this brings to the industry is great, allowing all the different vendors deliver top class products without losing focus on their specific specialisations. In my past positions working for different companies, the benefits of this arrangement opposed to keeping full staff to cover all aspects of development and design is quite high. Unfortunately the high turnover rate when keeping staff and the budget required to employ all the different specialised staff full time is not always feasible.

We can see other examples of collaboration amongst mobile platform development companies. Particularly with Google’s introduction of Android Operating System which was predominantly released to HTC phones, but has now spread across to other manufacturers, including Samsung. Nokia have also recently (at the time of writing this article) made a controversial partnership with Microsoft to supply the operating systems for their phones and to scrap their own Symbian Operating System.

With the ever expanding software and hardware world the opportunities for outsourcing and mutually beneficial arrangements with competitors is growing. As we can see by reading Hamel, Doz and Prahalad’s 1988 paper, most of the partnerships are still happening today, which goes to show that a business should always consider their options with competitor partnerships.

References (n.d.) Competitor definition [Online]. Available from: (Accessed: 13 March 2011).

Hamel, G., Doz, Y. & Prahalad C. (1988) Collaborate with your competitors – and Win [Online] Harvard Business Review. Available from: (Accessed: 13 March 2011).

Business Money Research

TCO vs. ROI – Which one to use?

Firstly, I’d like to outline the basic definitions of the two measures.

  1. Return on Investment: This is calculated by the basic mathematical equation:
    ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
    It is defined by “a performance measure to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments” (Investopedia, n.d.). An important note here is that the ROI calculation can be modified to suit its situation, you may include the running costs in as the cost of investment (Investopedia, n.d.).
  2. Total Cost of Ownership: “In general, the purchase price of an asset plus the additional costs of operation” (Investopedia, n.d.).

Personally, I prefer the Return on Investment approach. While it is inherently not 100% accurate due to the fact that we cannot predict the exact gains from the investment, it will give us not only the negative aspect of the investment, but also allows us to compare it to the financial gain the investment offers.

In my opinion, a Total Cost of Ownership has the potential shock value that may scare off investors due to it only showing the capital layout as opposed to the potential benefits.

Nash (2008) conducted a study that surveyed 225 technology managers with a result showing that 59% of the managers reported that ROI calculations influenced whether they pursued a project in the past 12 months compared to 41% reporting that TCO justified their decision. Nash’s article (2008) goes further to quote a CIO who states “ROI has to be the answer. TCO only looks at one side of the equation”. As per my comments above, I concur with this statement whole heartedly.

My experience in my career has been involved in mostly development of business tools for companies. Management reporting, investment reports etc. and I have not come across a single project that has required a TCO report, but many that have requested ROI’s. I see the place of a TCO report being more of an investigation into areas of business that do not necessarily return an investment, or hold ‘asset’ value; such as weighing up the costs of ‘perk’ items for employees to see if the business has enough excess profit to justify the expense incurred.


Investopedia (n.d.) Return on Investment – ROI [Online]. Available from: (Accessed: 19 December 2010).

Investopedia (n.d.) Total Cost of Ownership – TCO [Online]. Available from: (Accessed: 19 December 2010).

Nash, K (2008) TCO versus ROI [Online] Available from: (Accessed: 19 December 2010).



Smart Banking in South Africa

Many people are scared or simply too lazy to change their bank; I do not fall into either of these categories. As with my history of buying cars, I have much the same attitude towards banking – if I haven’t truely researched my options; how am I supposed to make an educated decision?

Here in South Africa we are “monopolised” (exaggeration, of course) by our big 4 (ABSA, FNB, NedBank and Standard Bank), our parents and grandparents have been using them for years and therefore we simply follow blindly. The big 4 are all as bad as each other, some (FNB) more innovative than others – but at the end of the day you are usually paying far too much for what you get.

I’m not going to delve into the big 4, as most of us are quite aware of at least one of the big 4 and the rest are usually quite similar.

Two fairly new-comers to the South African banking industry are:

  1. Virgin Money
  2. Capitec Bank

For this post, I’m going to propose how using the above 2 banks you can bank efficiently and benefit both yourself and your credit record while doing so.


Let’s start with Capitec Bank

Capitec Bank’s “Global One” account provides consumers with a debit card linked to a savings account. The fees (currently) per month are R4.50 for the account and includes Internet Banking at no charge.  The interest rate is, as with all other banks, linked to the prime lending rate, but is significantly higher than just about any other daily banking account – especially considering its only R4.50 per month administration fee. Even if you earn a low salary you are more than likely going to make that R4.50 back in interest due to the rates that Capitec provides (a higher rate for amounts under R10 000 – favouring the less fortunate for a change).

Capitec also provides SMS alerts for all transactions, charged at 40c per SMS, which can be disabled if you don’t wish to have it. The major savings come in to play when it comes EFT’s and debit orders. An EFT payment into your bank account is free, a debit order is R2.75, a manual EFT payment is R2.50 and Debit Card swipes are free as well. When it comes to cash withdrawals, Capitec have gone the route of a number of other financial providers and allowed for cash withdrawals from shop tellers; if you draw from Pick n Pay, Shoprite, Boxer, Checkers or PEP its a R1 fixed fee – if you draw from a Capitec ATM its R3.50 fixed fee and if you draw from any other ATM its R7.00 – so basically if you draw over a certain amount from one of the big 4 banks, you’re probably being charged less than one of their own customers!

Another great thing about Capitec is that payments from other banks usually land up in your Capitec account the same day or next day depending on what time the payment was made.


Next, let’s take a look at Virgin Money

Virgin Money’s Credit Card provides one of the lowest debit interest rates (currently 14%) and a better-than-average credit interest rate of 3% currently. This card also provides free swipes on petrol transactions – and of course, as with any credit card – there is no transaction fees for credit swipes. To quote their website you have “up to 25 days to settle your amount owing at the end of each month” – so, no interest charged until you’ve surpassed that 25 day time period.


There’s nothing more I feel is worth mentioning on the two as what I’ve outlined should theoretically be all you use your card for. Remember, keep away from purchasing on budget!

So what are the rules you should be sticking to to get the best out of your banking situation?

  1. Store all your cash in your Capitec Bank account.
  2. If you need cash, withdraw from Capitec at one of the shopping centre tills.
  3. If you’re shopping, use your Virgin Money credit card. Why? Because you don’t pay interest until 25 days after the end of the month; leave your cash in Capitec where it can take advantage of that sweet interest rate!
  4. ALWAYS be aware of how much you can afford to spend, don’t spend more than you have and try not to buy things that rely on the fact that you’re going to get your salary soon.
  5. Settle your full credit card debt before the interest kicks in (to be safe, I wouldnt settle it less than 5 days before the interest kicks in, just in case).

By following these rules and using the above banks you can save yourself a significant amount of money, not to mention earn some interest!

PS: By using your credit card for payments you are helping your credit record (having no credit doesn’t improve your credit record – you’d like to buy a house one day, wouldn’t you?)

Any better tips welcome, just leave a comment :-)