In South Africa, late payments have been known to kill small businesses, with as much as 40% of late payments being written off and 70% of SMEs failing within the first two and a half years.
This is according to Bernard Swanepoel, executive director of the Small Business Institute (SBI) in South Africa. "Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses. One of the surest ways to disrupt it is to delay paying them for their services," Swanepoel said to the Sierra Leone Times.
Swanepoel said SMEs have to close down because big businesses pay their invoices late, or not at all. This way, they are using small businesses as a line of credit. His organisation, the SBI, surveyed the top 100 companies on the Johannesburg Stock Exchange, asking whether they are paying SMEs within 30 days from invoice.
But only one in 10 said they would reveal the information to the public, and only a quarter of them has a policy to pay SME suppliers within 30 days. A "handful" said they pay SMEs within seven to 15 days.
The SBI also surveyed small businesses in its database and used social media to collect responses about their experiences of late payments. It found besides the alarming figure of 40% of late payments being written off as bad debt, SMEs expect invoices to be paid up to 101 days after invoicing, almost three times over the expected 30-day period.
The SBI has advice for big businesses and government-linked companies to pay small businesses within seven days, and medium-sized enterprises in 30 days or fewer. It also has advice for SME owners: it asks them to consider claiming interest and debt recovery costs from big companies or government departments that do not to pay them on time.