Business Day: JOHN DLUDLU: Time to take a stick to the monster of late payments

The department of small business development is one of those that seem to at least care about SMMEs

“The Covid-19 pandemic has had a negative impact and long-lasting effect on the economy of the country, businesses and many SMMEs [small, micro and medium-sized enterprises] and this has resulted in a growing rate of unemployment since some of the SMMEs were forced to close their businesses, which have [sic] led to many retrenchment of employees. To ensure that suppliers’ operations continue without strain, government institutions are urged to pay their suppliers on time and not contribute to the dire effects of the pandemic that is already putting strain on these suppliers to remain sustainable.”

The preceding apologetic passage comes from the annual report of the National Treasury, which tracks non-compliance by state departments and government agencies in applying the government’s policy that SMME suppliers should be paid within 30 days after submitting an invoice for work and services.

The annual report is mostly an internal monitoring mechanism by the Treasury to nudge other departments to comply. Though it is released to the public, its intended clients are mainly part of the government, such as the Forum of SA Directors-General, the standing committee on public accounts, the standing committee on finance, the Public Service Commission (PSC), and the departments of planning, monitoring & evaluation and small business development.

The main report noted a modest improvement (some reduction in payment delays), before noting that the monster of late payments or nonpayment of invoices was still very much alive and thriving, especially in the provincial and local spheres of government. The Eastern Cape and Gauteng are the worst offenders among the nine provinces, jointly accounting for 78% of late payments.

The departments that seem to bother to care least about the plight of long-suffering SMMEs include the National School of Government; planning, monitoring & evaluation; public service & administration; traditional affairs; communications & digital technologies; sports, arts & culture; trade, industry & competition; and, believe it or not, small business development.

This is not to suggest that the private sector and state-owned enterprises (SOEs), which are also bound by the 30-day payment policy, are doing much better. In fact, some SOEs have even done away with internal procurement ombud services, leaving SMME owners to their own devices or, worse, in the hands of lawyers for the few who can afford litigation. SMME owners tell sad tales of being asked for bribes for an invoice to be settled, or threats of being blackballed if they dare escalate complaints.

Other SMME owners find themselves in the precarious position of being forced to borrow for bridging finance to settle with their own suppliers, pay salaries or just to deliver the tender in the hope of creating a track record of delivery. The provision of bridging finance has become a thriving industry.

An interesting part of the report is the section about the reasons for non-compliance. These include misplaced, misfiled or unrecorded invoices; inadequate budget or cash flow; inadequate internal capacity; dysfunctional information technology systems; incomplete supporting documents; unresolved invoice discrepancies; and lack of internal preventive control measures.

To contextualise the problem of noncompliant invoices, it has to be recalled that the 30-day payment period is not new. It has been government policy since Thabo Mbeki’s administration, yet the situation is not improving. Disturbingly, the violations have continued during the Covid-19 devastation, when SMMEs have most desperately needed cash to stay afloat.

So what needs to be done? Last year, the private sector stepped up. At the start of the pandemic the CEOs of major corporations urged their peers to urgently settle all outstanding invoices, to help cushion SMMEs struggling with cash flow problems.

Last November the CEOs of more than 50 of SA’s largest corporations publicly committed to paying their SMME suppliers within 30 days as a matter of policy even beyond the pandemic. Unfortunately, the public sector wasn’t party to this effort.

Apart from continuously training the spotlight on policy violations with the PSC, the National Treasury has set up an avenue for invoice queries. To its credit, the Treasury clearly recognises that more can be done and needs to be done.

It has suggested some improvements. Among others, it has urged that the 30-day payment policy be included in the performance agreements of accounting officers (directors-general), CFOs and other officials working in this area, and that disciplinary action be taken against officials who fail to comply with the requirement to pay invoices within 30 days and who undermine the systems of internal control.

It wants accounting officers to be required to take steps to ensure the information to be submitted to the relevant treasury is duly signed off and submitted as per the time frames stipulated in National Treasury guidelines.

It is clear that naming and shaming the culprits hasn’t worked. This is not to propose that the Treasury should stop monitoring, but rather that moral suasion (“naming and faming”) and naming and shaming should be accompanied by punitive measures. The Treasury’s recommendations for sanction are long overdue and deserve support by advocates for SMMEs in SA.

Penalising offenders through the imposition of interest payments should not be ruled out as part of an arsenal of measures to ensure these future job and growth creators are supported as much as possible. Over and above these laudable measures, if the country is serious about ensuring that SMMEs contribute 90% of all jobs by 2030, then those standing in the way of this aspiration should be dealt with decisively. Surely criminalising this violation should not be ruled out either.

Similarly, the political heads of offending departments shouldn’t be spared censure. Naming and shaming political heads should form part of this new approach to supporting SMMEs.

• Dludlu, a former Sowetan editor, is executive for strategy and public affairs at the Small Business Institute.

John Dludlu

Business Day –