RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Notes to the Consolidated Annual Financial Statements 42. Financial instruments (Continued)

The Group has well‑established credit control procedures for predictable customers that monitor’s activities on customer accounts and allow for remedial action should the customer not comply with payment terms.

These procedures include an internal collection process; follow up with the customer either telephonically, emails, text, and in person; negotiations of mutually acceptable payment arrangements and the issue of a notice of disconnection of water supply and letters of demand. Non‑payment can result in disconnection and/or limitation of water supply and the customer’s account being suspended or closed. A legal collection process is pursued after 60 days’ overdue period except for the municipal customers which follow the Intergovernmental Relations Framework Act process and Promotion of Administrative Justice Act, 3 OF 2000 (“PAJA”). New customers are required to provide security equivalent to the exposure of the estimated maximum cost, which constitutes the cost of water supply, operating cost and administration fee at the commencement of the supply agreement. The level of security is reviewed if a customer defaults on their payment obligation or requires additional water supply capacity. All new high‑risk customers will preferably be on prepayment terms. New customers are required to provide security equivalent to between one and three months’ consumption at the commencement of the supply agreement. The level of security is reviewed if a customer defaults on their payment obligation or requires additional water supply capacity. In these instances, additional security is required to cover the credit exposure between one and three months of recent consumption before supply will commence. All new high‑risk customers will preferably be on prepayment terms. The following strategies are currently in operation in high risk areas of non‑paying customers with varying levels of success: • Constant engagement with the customers. • Disconnections/limitations of water supply within the legislative prescripts. • Payment arrangements that can be made a court order. • Analysis and early identification of defaulting trend and active monitoring. • Reassessment of security deposits and bank guarantees. • Efficient internal process, for example system automation of credit and collections such as automated notices and letters of demand. • Escalation for intervention for defaulting customers. • Robust legal recovery process. The Group’s decision to impair overdue amounts is assessed on the probability of recovery based on the individual customer’s credit risk profile and on the credit profile of the customer portfolio.The Group’s main classes of trade receivables are: • Potable water customers. • Non‑potable water customers. • Recoverable projects customers. • Other trade receivable customers.

Potable water customers

This transaction relates to the abstraction, pumping, treatment and distribution of purified water supplied to customers of Rand Water within the group’s service area in return for a gazetted tariff based on the customer’s consumption. Water supply agreements are entered into with key customers who comprise Municipalities and non‑municipal customers (Mines, industries and households). Their payment terms are 30 days from invoice date and are individually assessed for impairment.

Potable Water customers are required to provide security in case they default on their payment terms as they generally represent a low and medium to high credit risk. Certain potable water customers may be required to pay upfront based on their credit risk.

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