SBI steps up campaign against late payment of SMEs

May 5 2019

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Small businesses are called the ‘lifeblood’ and the ‘backbone’ of our economy, but it’s clear that they will soon need transfusions and a wheelchair, according to Bernard Swanepoel, executive director of the Small Business Institute (SBI).

Past research from SBI has shown that formal, employing small and medium enterprises (SMEs) make up 98.5% of the South African formal economy and yet the Department of Trade and Industry (the dti) reports that some 70% fail within the first 2.5 years and a recent study from the Global Entrepreneurship Index suggests that only 15% of start-ups are successful.

“Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses. One of the surest ways to disrupt it is to delay paying them for their services,” says Swanepoel.

He says: “We hear stories every day of SMEs having to close their doors because neither big business nor government pay invoices on time; sometimes – especially government – they do not pay at all.”

The SBI recently sent a letter to each of the top 100 companies on the JSE, asking whether they are paying small businesses within 30 days from invoice (also a government policy, with uneven application).

Of those that replied, only one in 10 said they make that information public and only 25% reported a specific policy to pay SME suppliers in 30 days or less. A handful, who are to be congratulated, pay them within seven to 15 days.

Late payments have been called the ‘assassin of small businesses’ and are widely acknowledged as ‘supply chain bullying’ in the UK. Many big businesses are treating small businesses as a line of credit.

“In effect they are running their businesses, earning interest, and improving their own cash flow with money owing to the small businesses we all say we value,” says Swanepoel.

“SMEs should consider claiming interest and debt recovery costs if another business is late paying for goods or a service.”

The SBI also surveyed small businesses in its database and used social media to collect responses about their experiences of late payments and while far from a scientific sampling, results suggested that as many as 40% of late payments were being written off as bad debt and payments, on average, were made 101 days after the 30-day target.

The SBI recommends that big business – as well as government and state-owned enterprises – applies the new government definitions of what constitutes small, very small and medium enterprises to pay businesses falling into the first two categories within seven days, and medium-sized enterprises, depending on the invoice amount in 30 days or fewer.

The SBI also urges government to simplify and standardise invoicing as part of this process. “We also believe that as the President moves to reconfigure government, there’s much to learn from jurisdictions such as the UK in ably supporting the growth of the SME segment,” he says.

From figures released last in September 2017 (the Department of Small Business Development has yet to deliver its latest annual report), a total of 71 883 invoices to the value of R4.3 bn were unpaid by government departments and were older than 30 days. Over 23 000 invoices were paid late by provincial government departments in 2016, totaling more than R2 bn.

Swanepoel says that not only is it one of the lowest hanging fruits to achieve an enabling environment for enterprises, it’s a moral imperative for SOEs and state agencies to expedite payment of invoices from SME suppliers. “The government of a country whose levels of inequality and unemployment are as high as South Africa’s should ‘first do no harm’. In all our engagements with government, we’ve impressed this upon anyone willing to listen,” he says.

Notes to editors:

• In the UK government is now paying small businesses within five days of invoicing; a previous campaign resulted in halving delay in five years.
• They are also asking big businesses to appoint a director responsible for prompt payments, promoting innovative technologies, such as the latest accounting software (to help
  small firms manage their payments processes), and empowering trade bodies to highlight the best and worst practices in payment behaviour.
• The Australian government pays in 20 days for any contracts up to AUS$1m and are developing a framework for any businesses with turnover > AUS$100m to publish their
  payment information.
• The UK already requires businesses to report payment policies, practices and performance twice a year. Failure to comply is a criminal offence for which companies can be fined.

For more information, please contact John Dludlu on 083 676 1881