Small businesses need predictable cash flow to gain traction, pay employees, market their products and services and invest in and grow their businesses, says Small Business Institute (SBI) executive director Bernard Swanepoel.

He adds that one of the surest ways to disrupt the growth of small businesses, is delaying payments to SMEs for services rendered.

“We hear stories every day of SMEs having to close their doors because neither big business nor government pay invoices on time; sometimes they – especially government – do not pay at all,” he argues.
 
The SBI recently sent a letter to each of the top 100 companies listed on the JSE, asking whether they are paying small businesses within 30 days from being invoiced, which is also a government policy, Swanepoel notes.
 
Of those that replied, only one in ten said they make that information public and only 25% reported a specific policy to pay SME suppliers in 30 days or less. A handful 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, SBI points out, adding that 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,” Swanepoel states.
 
“SMEs should consider claiming interest and debt recovery costs if another business is late in paying for goods or a service.”
 
The SBI has, meanwhile, also surveyed small businesses in its database and used social media to collect responses about their experiences of late payments. 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.
 
As a result of this, 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 less.
 
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,” Swanepoel says.

“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 concludes.