South Africa's SMEs want stricter rules to ensure timely payment

More than 95% of registered businesses in the world are small in size and employ 60% to 70% of the entire working population. But South Africa’s small, micro and medium enterprises (SMMEs) provide jobs to only 28% of the country’s workforce. That is partly because the government and large corporations dominate job creation there.

South Africa’s government wants to change this. Its National Development Plan has set the goal that by 2030, SMMEs will generate 90% of 11 million new jobs.

Helping these businesses get paid on time is key to this goal, especially since the Covid-19 pandemic has severely dented the viability of many small businesses.

Interestingly, it was the private sector that took the lead on this issue in South Africa. At the start of the pandemic in 2020, the CEOs of major corporations urged their peers to swiftly settle all outstanding invoices, to help SMMEs struggling with cash flow problems. Then, in November 2020, the CEOs of more than 50 of South Africa’s largest corporations publicly committed to paying their SMME suppliers within 30 days as a matter of policy, even beyond the pandemic.

The public sector, on the other hand, faced criticism for not joining this initiative. But it has made some moves. South Africa’s National Treasury releases an annual report on non-compliance with payment of suppliers’ invoices within 30 days. This is an internal monitoring mechanism that tracks other government departments’ and state-owned enterprises’ compliance with the policy.

It also established a centralised 30 days queries email, where suppliers can log their non-payment queries. The Treasury responds to those queries and assists suppliers with payments issues.

South Africa’s Small Business Institute, however, wants to see more change. Its chief executive John Dludlu suggested stricter rules, such as sanctioning the government departments and officials who fail to comply with the 30-day policy, and including compliance with this policy in the performance agreements of accounting officers, CFOs and other officials working in this area.

As small businesses work to advocate for better payments practices at the policy level, it is also important to ensure they have the right internal processes in place to help themselves be the first in line to get paid. These include communicating clear payment and service expectations, and maintaining customer intimacy. When it comes to prompt payments, policy and process have to work in tandem.