Municipalities are business partners from hell

2011-07-02 12:55

Municipalities have a dismal record with regard to settling their business accounts promptly, according to auditor-general Terence Nombembe.

In the Western Cape only 7% of municipalities fail to make payments to service providers within 30 days but in North West 88% of municipalities do not pay promptly.

Statistics for other provinces also spell doom for those who do business with municipalities.

Northern Cape (86%), Eastern Cape (73%), Free State (65%) and Limpopo (56%) have major problems in settling accounts within 30 days.

The underlying reason for the late payments, says Nombembe, is primarily cash flow constraints, which force municipalities to prioritise payments to suppliers.

Furthermore, many municipalities do not collect revenue due to them because they fail to enforce their debt collection policies.

Nombembe says most municipalities are unable to recover the cost of water and electricity in excess of the subsidised amount used by indigent community members.

The revenue base in some rural municipalities with little sustainable economic activity is limited, he says. For most of these municipalities, grant funding is not enough to cover operating expenditure.

Many municipalities also do not have the systems and processes in place to track invoices and ensure that payments to suppliers are made within 30 days.

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