No cushion: According to the National Development Plan, by 2030 nine out of 10 jobs will be created by small businesses. Picture: SUPPLIED
No cushion: According to the National Development Plan, by 2030 nine out of 10 jobs will be created by small businesses. Picture: SUPPLIED

A proposed law aimed at protecting small businesses and ensuring they are paid on time has been submitted to Parliament for consideration.

The Small Enterprises Ombud Service Bill aims to assist small, medium and micro enterprises that struggle to get payments on time and are entangled in various contractual difficulties.

The bill submitted by the DA proposes to establish a small business ombudsman to provide recourse to the sector’s players. Nonpayment by the public and private sector alike is a huge problem for small businesses, many of which are forced to close down as a result of cash-flow difficulties.

This problem has been acknowledged by the government and was serious enough to get a mention in President Cyril Ramaphosa’s maiden state of the nation address in February.

"It is clear that the failure of some government departments to pay suppliers within 30 days has a devastating impact on small and medium-sized businesses," the president said.

"The culture of late payment has gone on for far too long and has caused far too much damage, particularly to emerging black businesses."

Government departments have been instructed to pay invoices within 30 days but in the absence of sanctions often fail to do so. Sometimes nonpayment can extend to 180 days.

Answers to ministerial questions by the DA showed that as of January national departments had R7.7bn in unpaid invoices, of which more than R2.2bn were older than 120 days.

DA spokesman on small business development Toby Chance said in an interview that the Department of Health, through its provincial offices, had R15bn in unpaid invoices.

The lack of concrete support for small business stands in contrast to protestations about their important role in economic growth and job creation.

According to the National Development Plan, 90% of new jobs will be created by SMMEs by 2030.

"With more than 9.3-million people unemployed, supporting these SMMEs is critical," Chance said. He has submitted a private member’s bill to set up an ombud for the sector, which would conciliate, arbitrate and settle disputes in which SMMEs are involved.

The ombud service would be an alternative dispute resolution mechanism free of the cost and delays of court action, which was usually not viable for most small companies.

It would have offices in all nine provinces, its decisions would have the force of a court order and there would be no recourse to appeal against the ombudsman’s rulings, except on a point of law.

Chance said small businesses were often bullied.

"Many businesses that are struggling to survive are doing so because they are not paid on time. When businesses talk about access to finance, they are often talking about working capital finance, which is essentially short-term capital that is seriously impaired when customers don’t pay on time.

"Most small businesses operate on a 30-day cycle. They don’t have a lot of spare cash. If they are not paid within 30 days they have a serious problem."

ensorl@businesslive.co.za