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Hey! Big Businesses! Pay your suppliers!

Pay entrepreneurs on time, and make the need for legislation in this regard unnecessary.

Kenya’s drastic, arguably draconian announcement that it is considering a proposal to criminalise the late payment of suppliers illustrates the seriousness of a universal problem that is one of the major reasons for the failure of small businesses.

Similarly, Britain’s small business ministry recently announced that large companies could in future be held accountable for their payment practices. To be more precise, companies that fail to pay their small suppliers on time could face fines or censure.

Australia is also taking the issue seriously, with strict policies on the horizon including the federal government’s payment times register – a policy designed to put payment terms on the public record.

In New Zealand calls are growing for big business to stop treating small business “like banks” by paying invoices late. Its ministry of business stated recently that it is considering policy options and expects to make announcements “in the coming months”.

Cash flow is everything for a small business

Many of South Africa’s small and medium enterprises (SMEs) are burdened by late payment and it is time that we put pressure on large enterprises and government to end this practice. In Property Point’s experience, cash flow is one of the top five reasons small businesses fail.

According to a survey by the Small Business Institute (SBI), as many as 40% of late payments are being written off as bad debt and payments. On average, payments were made 101 days after the 30-day target.

The SBI also asked the top 100 companies listed on the JSE whether they are paying small businesses within 30 days of being invoiced, which is government policy. Of those that replied, one in 10 said they make that information public and only 25% reported having a specific policy to pay SME suppliers in 30 days or less. A handful pay within seven to 15 days.

Development programmes vs on-time payment

The importance of SMEs to South Africa’s economic growth is well documented and there are incredibly effective enterprise- and supplier-development programmes to assist entrepreneurs towards achieving sustainable profitability. However, if corporates and government agencies really want to develop entrepreneurs, they should pay them on time.

In 10 years spent developing entrepreneurs, I have heard heartbreaking stories of late payments leading to businesses shutting their doors. 

A delayed payment has disastrous consequences on an entrepreneur’s cash flow. While a larger organisation can dip into its reserves or an overdraft, most small businesses simply don’t have the capacity to absorb the shocks.

Vicious circle

This lack of capital results in a hand-to-mouth existence, with entrepreneurs falling behind with their own creditors and defaulting on loans, which ultimately affects their creditworthiness. Too many entrepreneurs have fallen behind on home loans, car loans and school fees because of late payments. They are often forced to delay salaries, making it difficult to retain staff. This drives desperate entrepreneurs to obtain unsecured loans at higher interest rates.

The more cynical among us would argue that big business is using small business as a bank and delaying payments as a tool to boost their own liquidity.

It is also not uncommon to hear stories of corrupt individuals in the public sector who force bribes out of entrepreneurs in order to facilitate payment.

With this in mind one can understand the measures taken in the likes of Kenya and Britain to stem late payments.

Soon entrepreneurs in those countries will have options; the fear of jail may be just the trigger needed to fast track payments. South Africa needs to follow suit, as there simply isn’t enough incentive to pay on time, nor consequences for delaying payments. In an economy under pressure it is in our best interests to do everything possible to support small businesses to thrive, grow the economy, create jobs and drive transformation.

It is time that we put policies in place to encourage corporates and government agencies to prioritise on-time payments, just as they do their enterprise development programmes. 

Shawn Theunissen is the founder and head of Property Point, Growthpoint’s enterprise and supplier development programme for SMEs.

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Perhaps we should name and shame some of the big retailers for their policies on late payments.

At present I am working with a small company which has received a purchase order from a listed entity for equipment and this has been delivered and payment should be made before end August. The listed entity doesn’t want to pay until they have a contract in place. They are dragging their heels on the contract. It will be at least another 30 days before payment.

The folk who should be reading your article are the payment clerks who really can go through their company payment processes faster. ‘ oh dear, sorry sir you submitted 2 hours late can only fit you in for the payment run in 2 weeks’

Show me any FMCG retail giant who pays on time. And then they still have the audacity to deduct a cash settlement % allowance for paying (on time).

Eradicating legacy accounting systems and introducing full digital solutions with end-to-end encryption can go a long way in eliminating this malaise. But then, governments are reluctant to invest in same due to obvious reasons…

Blockcain technology is here to solve this, from point of good receipt the terms of a agree T’s and C’s of a purchase order will be strictly adhered to.

Construction companies and Goverments are probably the biggest criminals of the non or late payers.

“The more cynical among us would argue that big business is using small business as a bank and delaying payments as a tool to boost their own liquidity.“

And therein lies the problem: Shareholders consider the WCC (working capital cycle) as a measurement tool to evaluate a company’s performance. One such action, which drives the success of a WCC, is the time it takes for a company to pay it’s creditors. The longer the better.
I therefore suggest, that when smaller companies sign up to do business with big retail giants, etc, they consider dispute resolution, mitigating circumstances and penalties for late payment and drive this home contractually.

I could not agree more that small businesses should be supported in their efforts to get their accounts paid. Fines, automatic interest and criminal censure are easy to implement.
All the talk about helping small businesses, but this simple step would be so helpful.

Odd that the writer omits any reference to state bodies, which are amongst the worst offenders.

The strange thing is that there was a time when the Big Chains made a point of paying suppliers on time; they realised that their relationship was symbiotic. Woolworths, in particular, had a system for supplier reporting (via that ancient fax technology) and ensuring that they could collect a cheque on Friday to cover their wages.

However Pick n Pay lead the charge in cannibalising its suppliers, squeezing prices and stretching payments, result that the economy is shedding jobs and the SME sector is under-performing.

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