The South African economy is under strain, affecting consumers and businesses alike. But as customers are struggling to keep up with their bills, late payments are threatening the long-term sustainability of small businesses.
According to Siva Dhever, Head of Credit Analytics at XDS, Mettus, late-paying customers are the quiet killer of small businesses. The latest credit data shows the pressure building exactly where most SMEs make their money, and there is a practical way to stay ahead of it.
“Ask any small business owner what keeps them awake at night, and cash flow will be near the top of the list. Not profit, not sales, but cash flow: the money that actually lands in the account in time to cover the salaries, the suppliers, and the rent. And the single biggest threat to it is a customer who does not pay on time,” Dhever says. “New credit bureau data suggests that the threat is growing and that it is growing precisely among the customers most small businesses depend on.”
What the Numbers Show
Dhever explains that South Africa’s unsecured credit book has grown around 28% in a year, to R408,7 billion. “That part is unremarkable. What should catch a business owner’s attention is that overdue balances grew almost 80% over the same period, to R88,9 billion. The share of all credit that is past due has climbed from 15,4% to 21,7%. People are borrowing more, and falling behind faster than they borrow.
“Now look at who is under pressure. Consumers earning between R20 000 and R40 000 a month hold 64% of that credit and carry 87% of everything overdue. Nearly 3 in every 10 rand they owe is already behind. In personal loans, more than half of that group’s balances are in arrears. For consumers earning above R40 000, the picture is far calmer, sitting at an 8% overdue ratio.
Dhever says that the R20 000 to R40 000 band is not an abstraction. For most SMEs, it is the customer, and often the employee too.
The two sides of the same credit story
“Here is a useful way to think about it: When you apply for funding, a lender reads your credit and transaction data to decide whether to back you. Your payment history, your records and your director credit profile tell your story for you, whether you are in the room or not.”
The same logic runs in the other direction. “Every customer you extend terms to, every account, and every agreement to pay next month are small loans you are granting. Most SMEs grant it on trust, with none of the checking a bank would do. When the wider credit picture is deteriorating, that becomes an expensive habit.”
He says that the lesson is not to stop offering terms, because terms win business. “The lesson is to offer them the same discipline a funder would apply to you: know who you are extending to, and keep an eye on the account once you have.
Read the Signal Before It Reaches Your Bank Balance
Dhever says a customer in trouble rarely tells you: they simply pay a little later each month, then later still. By the time a payment is missed outright, the strain has usually been building for a while. That is what makes arrears data such a useful early signal, because it moves before the problem becomes obvious across your own book.
“If your customers sit in the income band under the most pressure, rising arrears are an early read on your own next few months of collections, available to you before it reaches your cash flow.
“It reaches your team, too.”
The pressure does not stop at the customer. The millions of consumers in that income band are also employees. Financial stress among staff shows up as requests for salary advances, as garnishee orders arriving on your payroll, and as the distraction that money worries bring to work. For a small employer, an early and supportive financial wellness conversation is almost always cheaper than the alternative.
Action Steps for Entrepreneurs
Dhever encourages business owners not to panic. Instead, they need to build sensible habits that protect their cash flow.
1. Check before you extend. Before offering an account or terms to a new customer, run a basic affordability or credit check, the same way a lender would check you.
2. Start small, then grow the limit. Extend a modest amount first, and increase it once a customer has proven they pay on time.
3. Watch your book. Review your debtors every month and act on the first late payment, not the fourth. Early conversations recover far more than late ones.
4. Keep your own records clean. The habits that protect you against bad debt, banked income, digital payments and current records are the same ones that tell a strong story when you need funding.
5. Know your funding options before you need them. If a cash flow gap opens, instruments like an invoice or bridging finance exist for exactly that, and they are cheaper arranged calmly than in a crisis.
“The consumer headlines about debt will fade. The pressure underneath them will not, and it sits closest to the businesses that serve and employ middle-income South Africans. The owners who come through it best will be the ones who treat credit information as an early warning system on both sides of their business: the story they tell funders and the story their customers are telling them,” he concludes.
