Many big businesses treat SMEs as a line of credit, Small Business Institute says

An advocacy body for small and medium enterprises (SMEs) has urged small-business owners to consider claiming interest and debt recovery costs from companies or government departments that fail to pay for goods or services on time.

Late payments continue to hamper small-business owners, with many saying being paid on time is the biggest financial challenge in their businesses. SMEs are more affected by late payments as their cash flows are weaker than those of larger and more established peers.

Figures released in September 2017 by the department of small business development show that close to 72,000 invoices to the value of R4.3bn were unpaid by government departments and were older than 30 days. Over 23,000 invoices were paid late by provincial government departments in 2016, totaling more than R2bn.

According to Bernard Swanepoel, the executive director of the Small Business Institute (SBI), many big businesses are treating SMEs 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,” said Swanepoel.

“SMEs should consider claiming interest and debt recovery costs if another business is late paying for goods or a service,” he said.

The SBI recently sent a letter to each of the top 100 companies on the JSE, asking whether they are paying small businesses within 30 days from invoice, which is a government policy.

Of those that replied, only one in 10 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, said Swanepoel.

The SBI also surveyed small businesses in its database and used social media to collect responses about their experiences of late payments and “while far from a scientific sampling, 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,” said Swanepoel.

“The SBI recommends that big business, as well as government and state-owned enterprises, apply 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 fewer.”

The SBI also urged government to simplify and standardise invoicing as part of this process.

phakathib@businesslive.co.za