3. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
3.5 Financial assets
3.5.1 Loans receivable
 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in current assets, except for maturities greater than 12 months after the statement of financial position date, which are classified as noncurrent assets. For details related to the ECLs, refer to note 3.1.

  2020 
R’000 
  2019 
R’000 
 
Interest-free loans 50 611  94 929 
Interest-bearing loans receivable 40 461    58 603   
Less: Provision for impairment (18 952)   (6 006)  
72 120    147 526   
Less: Amounts included in current portion of loans receivable (35 604)   (105 766)  
36 516    41 760   

All loans receivable are unsecured and repayable within five years. Interest-bearing loans bear interest at a range of between prime and 11.75%. The fair value of interest-free loans, which include loans to product distributors, approximates their carrying value. This has been corroborated through discounted cash flow calculations at the effective interest rate the lender would have been able to secure from a financing institution, using an expected payment timeframe.

3.5.2 Trade and other receivables
 

Trade receivables comprise receivables that are due from customers which arise from transactions for the sale of goods, rendering of services and leasing of equipment in the ordinary course of business. Trade receivables are primarily accounted for at amortised cost, in accordance with the accounting policies of the Group. Sundry receivables are accounted for at amortised cost in accordance with the accounting policies of the Group. For details related to the ECLs, refer to note 3.1. Receivables for prepayments and VAT are stated at their nominal values.

The following table provides an analysis of the Group’s trade and other receivables, including an analysis of trade receivables by originating transaction type as well as by counterparty:

  2020 
R’000 
  2019 
R’000 
 
Trade receivables arising on revenue from contracts with customers 2 126 745  2 182 409 
   Banks 231 424    83 480   
   Independent and informal retail customers 1 010 711    858 281   
   Formal market retail customers 446 342    535 871   
   Customers in the petroleum sector 94 275    67 730   
   Receivables for starter packs 160 005    212 967   
   Cell C 13 297    27 415   
   Other cellular networks 48 006    110 373   
   Municipalities and private utilities 122 200    252 561   
   Associates, joint ventures and related parties 485    33 731   
Trade receivables arising on financing transactions 1 269 019    1 540 045   
   Cell C 1 253 602    1 325 303   
   Other 15 417    214 742   
Less: Provision for impairment (131 229)   (95 984)  
Net trade receivables 3 264 535    3 626 470   
Net sundry debtors 210 806    189 647   
Prepayments 412 308    315 547   
VAT 42 094    125 602   
  3 929 743    4 257 266   

Included in trade receivables are debtors of R150 million (2019: R208 million) which have a cycle period in excess of 12 months but are considered current due to management expecting to realise the assets in their normal operating cycle.

The Group has further insurance cover to the value of R10 million (2019: R10 million) over trade receivable balances with certain material customers. All insured values exclude VAT.

There is a cession of trade receivables (including inter-group balances) of R4.337 billion (2019: R3.563 billion) in favour of Investec Bank Limited as security for facilities referred to in note 3.2.

3.5.3 Advances to customers
 

Advances to customers comprise receivables arising on financing transactions where, in substance, the nature of the business activities undertaken by certain subsidiaries of the Group is to engage in the provision of financing. Refer to note 3.1 for further detail.

Advances to customers are primarily accounted for at amortised cost, in accordance with the accounting policies of the Group.

  2020 
R’000 
  2019 
R’000 
 
Advances to customers 1 687 564  1 619 965 
Less: Provision for impairment (5 489)   (2 868  
1 682 075    1 617 097   
Less: Amounts included in current portion of advances to customers (1 232 250)   (1 032 657)  
449 825    584 440   

Cell C guarantees bad debts and cancellations of these customers in terms of the “Amended and Restated Product Procurement and Financing Agreement”. At 31 May 2020, bad debts and cancellations amounted to R214 million (2019: R210 million). These amounts are included in the trade receivables balance owing from Cell C. In terms of the above agreement, if Cell C is unable or admits inability to make a payment as it falls due, or is deemed to or declared to be unable to pay its debts under the applicable law, suspends or threatens to suspend making payments by reason of actual or anticipated financial difficulties, it would be in breach of its agreement. If not remedied, CEC ultimately has a right to port the Cell C base to another network operator.

3.5.4 Cash and cash equivalents
 

Cash and cash equivalents include cash on hand and deposits held on call with banks.

  2020 
R’000 
  2019 
R’000 
 
Cash at bank 2 014 531  1 385 334 
Cash on hand 386    262   
2 014 917    1 385 596   
Bank overdraft (192)   (7 843)  
2 014 725    1 377 753   

Included in this balance is restricted cash of R15.6 million (2019: R16.6 million), received on behalf of and immediately due to third parties, that may not be utilised in the Group’s ordinary course of business.