It’s well known that small and medium-sized businesses often struggle cashflow due to delayed and non-payments for services rendered, or products delivered to their clients, especially government departments.
The National Small Business Chamber (NSBC) – a non-profit organisation promoting the interest of small businesses believes that more than half of all SMEs are burdened with late payments and are going out of business because of this.
After seeing that late payments have reached all-time high and also the average amount owed to each SME is at the highest level, Twane Gouws, Head of national operations at NSBC, says the chamber had to come up with an innovative way to benefit both the big corporates and the small guys.
Their solution was the Prompt Payment Code which seeks to encourage and promote best practice between government, larger organisations and their SME suppliers.
How it works?
Launched on Small Business Friday, September 6, 2013 – the Prompt Payment Code is a commitment initiated to promote quicker business transactions.
“Prompt payment is vital to the cash flow of every business, especially to smaller businesses”
The prompt payment code is not legally binding. It is a signed commitment with businesses opting to be signatories and honour their commitments.
Signatories to the code commit to paying their SME suppliers within 30 days, and that there is a proper process for dealing with any issues that may arise.
When companies sign up to the Code, they are also committing to manage and resolve disputes as quickly as possible (seven days) and encourage their customers and suppliers to sign up to the code.
Who benefits and how?
“If you pay promptly, then it’s a real benefit to your supplier and potentially to your customer as you could benefit too by receiving more favourable pricing terms which could make you more competitive,” Gouws said.
The organisation believes if the majority of larger organisations adopt the code, like it has been adopted internationally, that it could have some real “life saver” benefits. The result is that SMEs throughout South Africa will have improved cash flow, which is the most critical area of every business.
In the UK over 60% of total UK supply chain value are signatories in sectors ranging from banking and catering to the creative industry.
Once approved, organisations will use the “Proud Signatory of the Prompt Payment Code” logo on stationery, website etc. to show that they are serious about good payment practice.
Where to from here?
A cause for concern for NSBC is the slow adoption of the code. Almost a year after its launch only a handful companies, including Nedbank, Sanlam and Santam have signed up.
“There is a lengthy internal procurement policy process that is required for large corporates,” said Gouss. “[But] many organisations are on track to sign the code,” said Gouws.
Asked how they were planning to promote the code and attract many others to sign, Gouss said: “An important channel will now be through [traditional] and social, like other countries (UK), to mobilise big business to do the right thing and sign the code.”
She added that everyone needs to continue the drive to “go big by supporting the small.”
“Big business and government cannot sit on cash reserves when those all-important overdue invoices haven’t being paid.”