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Late payments threaten SME survival

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A massive 15% of invoices from small businesses are paid late, putting enormous pressure on companies already struggling to survive.
An economic study from Sage reports that more than 8% of payments due to the country’s SMEs are never made or made so late that businesses are forced to write them off as bad debt.
“Late Payments: The Domino Effect” highlights that 52% of South African SMEs experience direct negative impacts from late payments.
As a consequence of late payments, 28% struggle to pay bonuses around the festive period; 34% pay suppliers late; and 28% delay investments into their businesses.
Looking at the reasons why SMEs don’t follow up on payments, 40% of South African SMEs say it is to protect client relationships, indicating that there is a stigma around this. A further 24% say they have no dedicated resource for the job and 13% say they don’t have time to do it.
Charles Pittaway, MD of Sage Pay, comments: “Late payments have a worrying impact on the profitability and sustainability of South Africa’s SMEs, many of which have low cash reserves and tight cash flow. Knock-on effects of late payments include small business struggling to pay their suppliers on time, taking advantage of early settlement discounts, and having less cashflow for investment in growing the business.
“Large enterprises and government should make paying small suppliers and service providers on time a priority to help foster a job-creating small business sector. Finance Minister Malusi Gigaba highlighted the importance of government paying invoices to small suppliers within 30 days in his Medium-Term Budget Policy Statement this year – a development which we welcome and support.”
Jeff Cullis, founder of Urban Organics, the 2017 Cape Talk Small Business Awards with Sage winner, points out that cash flow is key for SMEs.
“If we – as a new entrant – are tardily paying suppliers because our customers pay us late, we cannot benefit from bigger trade discounts. That, in turn puts pressure on our margins, pricing and competitiveness,” he says.
“Plus, calling debtors to collect outstanding payments is a waste of time and money. To avoid these problems, we insist on prepayment from our customers, but this means we are unable to do businesses with many larger buyers who only operate on an account.”
For South African small businesses, between 5% and 10% of their administrative work is related to following up on late payments. Survey respondents also indicate that they spend an average of 20-man days a year doing this and incurred more than R48 000 in costs chasing overdue debtors.
Undertaken by Plum Consulting, the research analysed responses from more than 3 000 business builders.