In a move that effectively throws down the gauntlet to government departments, state-owned entities and municipalities, corporate SA has formally committed to paying its small and medium enterprise (SME) suppliers within 30 days.
The #PayIn30 initiative – spearheaded by Business for South Africa (B4SA), the SA SME Fund, and Business Leadership South Africa (BLSA) – was officially launched on Tuesday.
It has secured the commitment of more than 50 corporates, including several major JSE-listed companies such as Discovery, Redefine, Aspen Pharmacare, Investec, Massmart and Naspers and Old Mutual.
Also backed by Business Unity South Africa (Busa), the Small Business Institute (SBI) and the Black Business Council (BBC), #PayIn30 is intended to support SMEs at a time when they have been worst hit by the Covid-19 economic crunch and the country’s recession, which came even before the pandemic hit.
“#PayIn30 is aimed at institutionalising a culture of early payments of SMEs. Over 50 companies have committed to this campaign and we expect this number to increase in the months to come,” says BLSA CEO Busi Mavuso, who is also a member of the B4SA steering committee.
“I am proud that our members recognise that we’re all in this together, and as corporate leaders, we need to do our part to help our economy grow,” she adds.
In the past, government has also committed to paying SMEs in 30 days.
In fact, this is one of the rules pushed by the National Treasury. However, government at various levels (especially municipalities) has come in for flack over the years for not paying small businesses on time.
Business failures expected to rise
According to B4SA, which came together as an alliance of business groupings just after the Covid-19 pandemic hit SA in March, the double whammy of the country’s recession and the pandemic have had a devastating impact on some 2.5 million SMEs, which account for around 10.8 million jobs.
“TransUnion data points to 6.4% of formal SMEs going into bankruptcy [up 50% from last year], with 260 000 jobs lost and another 240 000 at risk. With a tightening economy, the benefits of the banks’ payment holidays coming to an end, and the winding down of the [UIF] Temporary Employer-Employee Relief Scheme (Ters), this is expected to rise to 10-15% of small businesses going into business failure next year, with almost a million jobs lost and at risk,” B4SA points out.
Its says that even before Covid-19, one of the key pressure points for SMEs was access to working capital and cash flow.
“Covid-19 has made this problem worse. Some companies have used the crisis to extend payment terms and have asked SME suppliers to reduce fees. This is simply not sustainable for smaller businesses. Corporate South Africa recognises that paying their SME suppliers in 30 days is one of the key levers for an SME’s sustainability,” B4SA adds.
Top CEOs on board
Commenting on the #PayIn30 initiative, Discovery Group CEO and chair of the SA SME Fund, Adrian Gore, said that paying SME suppliers early is a clear demonstration of a shared value approach to business.
“As a society, we need to start implementing bold actions to grow our economy and preserve and create jobs. I believe entrepreneurs are a powerful force and an integral part of this rebuilding. We need to support them.
“Hence, I am calling on my fellow CEOs to join us in this significant initiative,” said Gore.
Allan Gray CEO Rob Formby noted that the SME sector employs about 47% of South Africa’s workforce and accounts for 20% of GDP.
“[The sector] has the potential to play a critical role in our country’s economic recovery and future growth. Cash flow is key – and these small businesses are heavily reliant on being paid for their services so that they, in turn, can pay their staff and replenish supplies,” he said.
“Large corporates like ourselves can make a big difference by simply paying on time; a relatively small thing,” said Formby.
“I encourage others to do so to help this sector survive and thrive.”
As Stavros Nicoloau, a senior executive at Aspen Pharmacare, put it: “If there’s no money coming into an SME from its customers, there’s no money with which to pay their employees, lenders or their own suppliers.
“The knock-on effect of late payments reverberates across the economy,” said Nicoloau.
“That’s why early payment terms for SMEs are critical. Aspen Pharmacare wholeheartedly supports B4SA’s #Payin30 campaign and commits to paying all its SME suppliers within 30 days.”
Reacting to the initiative, Jomo Khomo, CEO of Kele Mining, said: “This is a wonderful campaign that will have a major impact on small businesses like ourselves who service large corporates.”
Kele Mining is a contract mining services company and a 2019 CEO Circle Entrepreneur.
“We don’t have the luxury of a ready supply of working capital or extended credit facilities, so cash flow management sits at the heart of our ability to succeed. Without this, we can’t retain a healthy credit rating, or pay our own creditors and employees on time,” said Khomo.
“It’s really great to see so many CEOs standing up for smaller businesses. This is the type of ethical leadership we need in a crisis.”