THE MONSTER OF LATE PAYMENTS STILL GOBBLING BUSINESSES
During the Covid-19 pandemic, Business Unity SA, Business Leadership SA and the Small Business Institute ran a campaign to encourage publicly quoted companies to pay small business suppliers within 30 days. More than 50 large companies signed a public pledge to do so.
Private sector companies have different payment regimes. Some pay within seven days of the submission of invoice while others pay within the 30-day period. The 30-day payment period is government policy, but the campaign was unfortunately not joined by the government, organs of state and state-owned enterprises (SOEs).
The National Treasury regularly monitors and reports adherence to the decades-old policy of paying suppliers on time. Its useful report tracks invoices paid within 30 days; those older than 30 days and the reasons for non- or late payments. The read is depressing; it shows the monster of late payments — the silent killer of small businesses — is alive and kicking.
The Treasury’s latest report indicates that during the first quarter of this financial year 172, 387 invoices totalling R14bn were paid after 30 days. This represents a 53% regression when compared with the fourth quarter of the previous financial year. At the same time, the report shows an improvement in the number of invoices older than 30 days paid by national and provincial departments. Reasons for non-adherence to the policy haven’t changed much. These include inadequate budgets, financial systems challenges, challenges related to the central supplier database, high accruals from previous financial years, disputed invoices with suppliers, procurement challenges, internal control weaknesses, internal capacity problems, late processing and authorisation of invoices and misfiled, misplaced or unrecorded invoices.
During the first quarter of this financial year a new system was implemented, which resulted in glitches, though the Treasury reports that these were addressed. The problem of late or nonpayment of suppliers affects all businesses. But it is worse when it comes to small businesses. It affects not only cash flows but also their ability to fulfil contracts.
It forces small business owners to borrow to meet orders, an entirely avoidable cost. In the worst cases it drives businesses to the wall. SOEs, which have larger operational expenditure budgets, aren’t doing any better. They are among the worst offenders.
Some companies have resorted to establishing internal ombud offices to resolve procurement disputes. Still, it is not uncommon for payment disputes to end up in law courts. Again, this costs small business owners money. As always, there is also the problem of corruption. Unscrupulous officials sometimes ask for bribes to pay legitimate invoices for services rendered. This practice also eats into the profit margins of small business owners.
As was shown during Covid-19, it is possible to pay small businesses on time: that is, within 30 days or earlier. In fact, some businesses even advance 50% of the total invoice to trusted small suppliers to ease their cash flow.
If it can be done in the private sector it should be possible to do so in the public sector as well. What is required is political will and leadership at the top of these departments. Directors-general should hold their procurement officials to account. There would be nothing wrong with hauling an official before a disciplinary hearing for not paying a supplier, especially if it kills off a small business. This would demonstrate determination to make small businesses the backbone of the economy.
A year ago the government initiated a process of establishing an ombud office to assist small business owners with payment disputes and other dodgy business practices. The process went as far as candidates being interviewed for the position. It has since stalled because of wrangling among parliamentarians.
This will not be a panacea for the monster of late payments, partly because it will take months for the appointee to set up a new institution. In the meantime small businesses will continue to die in droves.
This cannot be allowed to continue. The government and private sector should treat small business owners as the rock stars of the economy.
* Dludlu, a former editor of Sowetan, is CEO of the Small Business Institute
