Cash flow is the lifeblood of a business. Unfortunately SMMEs in South Africa have been on the receiving end for a long time. SMMEs are left waiting payment, month after month, by government and corporates. It strangles their cashflow, reducing their ability to operate and meet their obligations. Waiting for an additional month or two, can be the difference between staying or closing the business. The entrepreneur experiences undue hardship and emotional stress.
2016 to 2020
According to the 2016 SAICA SMME Survey, 80% of SMME’s stay away from doing business with government because of late or nonpayment of bills and red tape. By 2019, the situation continued to worsen for late payments to SMME’s. According to the 2019 Xero State of Late Payments in South Africa report, 91% of small business are waiting for payment outside of their normal terms.
In 2019, the Small Business Institute (SBI) surveyed the top 100 companies on the JSE regarding their payment to SMMEs. Only 25% of those surveyed had a specific policy to pay SMEs within 30 days.
In 2020, a Public Service Commission report showed that government owes SMMEs billions in outstanding invoices.
In November 2020, the #PayIn30 initiative was launched. Led by Business for South Africa (B4SA), the SA SME Fund, and Business Leadership South Africa (BLSA), it has the backing of Business Unity South Africa (BUSA), the Small Business Institute (SBI) and the Black Business Council (BBC).
Depending on the corporate, SMMEs can experience hassle free settlement or go through endless hoops to get paid. It is a sad day when corporates leverage the cash owed to SMMEs to carry their business through difficult times. Unfortunately some corporates have an official policy of paying SMMEs on time, yet in practice, there are ongoing delays when it comes to making payment. In the event of a dispute, the payment can be dragged out for several months.
Upfront, some government departments, municipalities and agencies are doing great work. Despite the perception of rampant corruption, there are many entrepreneurs, ethically going through the legal procurement and tendering process. Sadly, winning the tender can still lead to small business failure. Perhaps the biggest challenge for entrepreneurs doing business with government is timeous payment.
The existing regulations are sound in this regard. Treasury regulations require government to pay creditors within thirty days from receipt of an invoice. In 2018, National Treasury issued a circular to this effect here. The exception is where there are different provisions in the contract.
Yet in practice, government doesn’t follow these regulations for several reasons. Firstly, even if the SMME secured the contract legally and ethically, they may come up against a shady official that expects them pass money under the table. Or will simply, delay their payment until they agree. Secondly, many municipalities and state owned entities are in a dire financial situation. They don’t have the funds available on time to settle the invoice. Thirdly, the invoice may get lost in the bureaucracy. A one day administrative delay can lead to the invoice rolling over into the next 30 day cycle.
Government has established a dedicated hotline for late payments to SMME’s on 0860 766 3729 (0860 SMME PAY).
While government and corporates have taken measures to address late payments to SMME’s, ultimately, it comes down to them doing what they promise and delivering results.