John Dludlu | South Africa must act faster on late payments…
In May, Britain’s King Charles III will set out his government’s priorities for the year. Among others, he is expected to place the plight of late payments to small businesses at the centre of the government’s agenda.
Specifically, the UK small business commissioner, the equivalent of an ombud, will be given powers to fine big businesses that don’t pay small businesses within 60 days and to adjudicate payment disputes.
The announcement will come as a huge relief to long-suffering small business owners who have been complaining to government that their businesses are being killed off by late or no payments.
As many as 38 small businesses are known to shut their doors each day in the UK. According to British government data the problem, which is actually a worldwide issue, costs the UK £11bn every year.
In theory, the South African government is ahead of the game in this. For decades it has been state policy that suppliers ought to be paid within 30 days after delivery of services or goods.
Unfortunately, enforcement has been tardy — government departments, state-owned enterprises (SOEs) and other organs of state are among the worst late-payment offenders.
The National Treasury and Public Service Commission track the payment issue through regular monitoring reports. They report on the age of invoices and the rand amount of unpaid invoices, name and shame culprits and, unwisely, on occasion grant exemptions to late payers.
The reports show small improvements. In a major breakthrough, in 2021 more than 50 of South Africa’s listed companies publicly pledged to pay small businesses within 30 days. The campaign didn’t include SOEs and state departments.
In a major reform being championed by the Public Service Commission, the situation will soon change. Municipalities and SOEs will also have to account for their tardiness in paying invoices from small business owners.
Although late, this will be a major step in giving desperately needed support to small business owners, especially family-owned businesses.
While South Africa has been a leading light in small business support policy, implementation of support measures tends to lag behind the words.
A case in point has been a mooted cure-all, the small business ombud office. I haven’t always been a supporter of this office, partly because government’s capacity to create effective new institutions is hardly inspiring. For example, it took years after a decision was made to establish the Border Management Authority, despite the clear problem of porous borders.
In addition, there are sufficient legal instruments to achieve the goals envisaged for the ombud office. For example, raising the threshold of disputes adjudicated by the small claims court could achieve the same objective.
The process to hire a small business ombud — a function of parliament — has been mired in political wrangling. The leading candidate couldn’t muster enough support from members of the government of national unity (GNU), who are key to getting the decision over the line.
A new recruitment process has yet to start. Meanwhile, small businesses continue to suffer from maladministration and malpractices the ombud’s office could be addressing.
There is little the government can do to restart this appointment process. It requires that the constituent elements of the GNU should agree on an acceptable candidate to lead this office.
A nudge from President Cyril Ramaphosa to his GNU partners, especially the DA and IFP, could do the trick to rescue the process. As matters stand, it remains unclear when the process might restart.
Some improvements don’t require parliament to implement. For example, the Treasury shouldn’t easily grant exemptions to officials who fail to do their jobs and kill off small businesses as a consequence.
A start would be Treasury making it harder to get exemptions for delays in payment of old invoices. After the commencement of criminal charges against national police commissioner Fannie Masemola over contraventions of the Public Finance Management Act, it should be logical that late payments should also be deemed a criminal offence.
Those accounting officers found to be responsible for late payments should be penalised. In other jurisdictions companies are asked to report payment terms to suppliers in their annual reports. This keeps users of services honest and discourages them from abusing service providers to manage cash flow.
An extra paragraph in an annual report about a company’s payment policy cannot be deemed a compliance burden or a trade secret. After all, much of this information should be disclosed upfront to prospective service providers as a matter of course.
• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.
