UNRAVELLING AN INGRAINED SYSTEM OF NOT PAYING SMALL BUSINESSES ON TIME IS OUR COLLECTIVE RESPONSIBILITY

Business Partners Limited’s Gugu Mjadu expresses support of an industry-wide challenge, urging corporates and government to #PayIn30

According to the quarter 3: 2021 Business Partners Ltd SME Index, the biggest challenge that South African small businesses project they will face in the next six months is around cashflow. For a small and medium-sized enterprise (SME), so much rests on being able to strike the delicate balance between money coming in and money going out. As such, late payment processing can catalyse a ripple effect that can have serious consequences for an SME. Both the public and private sectors need to re-evaluate their payment processes for small businesses and understand that the standard 30-day lead time on payments must be upheld and respected and where possible, shortened further.

This is the opinion of Gugu Mjadu, Executive General Manager: Marketing at Business Partners Limited, who works closely with many South African small businesses. “From experience, we know that above all the unique challenges that South African SMEs face, cashflow is the most significant. Whether a payment is processed within 30 days or not, can make the difference between whether an employee is paid on time and ultimately whether a business survives or folds. We urge corporates and state institutions to come to an appreciation of the seriousness of this issue and to re-examine their policies, action and support the swift payment of SMEs,” Mjadu asserts.

A study conducted by accounting software firm Xero revealed that over 90% of small businesses in South Africa are owed money outside of their payment terms. On average, in South Africa, payments are made 18 days late. The domino effect of this extends beyond business operations, to factors such as productivity. The same study showed that almost 90 work hours are spent chasing late payments each year.

The Xero report is underscored by the National Treasury annual report on non-compliance with payment of suppliers within 30 days which revealed that national departments achieved an annual average timeous payment rate of 73% in the 2020/2021 compared with 85% achieved in the 2019/2020 financial year.

In the case of a small business, one late payment can have a major impact on its balance sheet, which can have far-reaching implications for operations and staffing. It is crucial that SMEs are paid on time in order to meet their financial obligations which include rental, staff remuneration and operational costs like electricity and waste removal, among others. SMEs who are not able to demonstrate healthy cashflow are also less likely to gain access to finance through banks and other financial institutions.

“The biggest percentage increase we saw in the results of the SME Index regarding what small businesses need from government to grow and thrive, was around prompt payment processing. This finding paints a telling picture and highlights a dire need for reform and a need to rally around the SME sector to enable grow and thrive,” commented Mjadu.

Apart from monetary implications, there are vast psychological and mental effects to be considered. As the study by Xero concluded, the human cost of late payments cannot be underestimated. SME owners who participated in the study reported aggravated levels of stress, an adverse effect on their social lives and a myriad of problems in their personal and family lives. The prevailing culture of non-commitment to honouring standard payment terms is detrimental to the mental wellbeing of SME owners.

In a bid to raise awareness around the importance of paying SMEs on time, Business for South Africa (B4SA) launched a campaign called #PayIn30, in collaboration with a number of industry partners. Through the campaign, large companies are encouraged to make a formal commitment to their SME suppliers to pay outstanding invoices within 30 days. To date, more than 50 companies have indicated their agreement with these terms and have joined the national business community in instituting a culture of early payments of SMEs.

Mjadu indicates their whole-hearted support of B4SA’s #PayIn30 campaign, and the government policy spearheaded by the National Treasury for government departments and agencies to pay within 30 days: “We appeal to institutions in the private and public sectors to honour their policies and commitments to pay within 30 days. Leaders of these institutions play a pivotal role in shaping the SME sector, and it is important for them to take up this mantle with a renewed sense of personal and professional accountability in 2022. Unravelling an ingrained system of not paying small businesses on time is our collective responsibility.”                        

ENDS