In his 2017 budget, Finance Minister Pravin Gordhan promised the continuation of procurement reforms to widen opportunities for small business participation and ensure public money is being spent effectively. However, if the government is serious about boosting small business growth, they need to first ensure that any service providers are paid promptly.
Over 23,000 invoices were paid late by provincial government departments in 2016, totalling more than R2 billion. The number of invoices paid late by national departments also rose from over 13,400 in September 2015 to nearly 14,900 in September last year. South Africa’s small business growth could be severely hampered by a culture of late payment and the government is one of the biggest culprits.
A threat to SMEs
In February this year, Xero published new research showing that getting paid is the number one financial challenge for half of South Africa’s small businesses, resulting in both increased stress and reduced productivity. On average, these businesses spend 10.4 hours a month on debt recovery. This is a hugely inefficient allocation of resources, wasting time that could be spent much more effectively, developing growth strategies and delivering quality customer service.
With limited capital to mitigate any shortfall, resulting cash flow issues will at best stifle growth and at worst threaten the survival of these businesses. This could have far-reaching consequences for an economy that showed only muted signs of recovery in the third quarter of 2016.
The small business sector is recognised globally for its contribution to job creation and economic growth. However, South Africa’s 2016 National Small Business Survey found that 76% of businesses under 5 years cited access to funding as their biggest obstacle to growth. In this environment, late payments are an additional financial worry for SMEs. With SMEs currently contributing an estimated 53% of GDP and employing 60% of the workforce, the success of South Africa’s economy clearly depends on the success of its small businesses. Eradicating the negative trend of late payments is key to boosting this success.
Lead by example
The South African government needs to lead by example and stamp out the late payments culture. It’s welcome news then that the government is taking steps to improve its poor payments record and set a better example. Jeff Radebe, the Minister in the Presidency for Planning, Monitoring and Evaluation, has gone on record to acknowledge that timely payments from government to service providers are necessary to achieve the country’s economic growth targets. Radebe has noted that the National Development Plan, which aims to create 11 million jobs by 2030, is linked to the growth and development of the small business sector.
“This [job creation] will not be possible if we do not aggressively support the growth and development of the small business sector”, said Radebe. “Our government is fully aware of this challenge.”
Small business owners can also take steps to minimise the impact of late payments on their business, and even get paid faster.
These include invoicing promptly, keeping accurate records, clearly defining payment terms and using technology to automate invoice reminders. Some accounting software also offers the option to send invoices online with a ‘pay now’ button to ensure payment is as easy and painless as possible.
With the right information and tools at hand to help improve cash flow and end problems associated with late payments, small businesses will be stronger – and so too will the economy.
About the author: Colin Timmis is the SA Head of Accounting, Xero.