A survey among more than 500 small and medium sized businesses in South Africa found that 91% are impacted by their invoices being paid late due to a growing culture of late payments.
The average overdue invoice is paid about 18 days late, according to The State of Late Payments report by global small business platform Xero. This, in turn, has a big impact on a business' ability to pay its own staff and suppliers.
Almost half of respondents (47%) said they see cash flow and late payments as a threat to their business. They said it restricts their current operations as well as their "long-term aspirations" for the business.
About 30% of respondents indicated that they would actually be able to clear all their business or personal debt – like credit and loans - if only they were paid on time.
Over a quarter of respondents (28%) had to borrow money from friends and family to keep their business afloat.
Colin Timmis, general country manager of Xero South Africa emphasises that SMEs "live or die" by their cash flow. If they’re not paid, they can't survive.
"Every delayed payment has a profound impact on a small business. Salaries don't get paid on time, raw materials can't be acquired, existing projects suffer, and new ones can't be taken on," says Timmis.
"Getting paid on time would help entrepreneurs invest and grow their business."
More than a fifth (21%) of respondents that had invoices paid late said they struggled to pay their own suppliers on time because of it, and 20% said they struggled to pay their staff because of late payments of their invoices.
Nearly half (47%) listed cash flow and late payments as one of the main threats to their long-term growth aspirations. About 21% were refused access to finance because of late payments, while 21% said they are struggling to pay for business-critical services.
According to Timmis, not only does late payments stunt the growth of existing businesses, but it could make potential entrepreneurs hesitant to establish their own businesses in future.
"Late payments make owners become preoccupied with managing short-term cash problems, thus taking time and resources away from planning for the future," says Timmis.
When asked what they would do with the late payments owed to them, 30% of respondents said they would clear some debt; 38% would appoint more staff or raise salaries of existing ones; and 29% said they would invest in new business technology to help them manage the challenge of late payments.
The Experian Business Debt Index (BDI) improved moderately in the third quarter, rising to a reading of -0.18, from -0.35 in the second quarter.
The index reflects the relative ability for businesses to pay their outstanding suppliers or creditors as well as the overall health of businesses in the economy.
The improvement is attributable largely to businesses' willingness to repay creditors, which outweighed the slight deterioration in the macroeconomic contributors.
"While this is a step in the right direction ahead of the festive season, businesses still find themselves in negative territory, albeit a slower deterioration in business debt conditions," said Thabo Hermanus, chief operations officer at Experian South Africa.
One of the more dramatic inferences to draw from the latest Experian data is the deterioration in the financial position of SMEs relative to the overall business sector.
Whereas the number of outstanding debtors' days amongst SMEs shot up from 50.0 at the beginning of 2018, to 65.5 in Q1, 66.1 in Q2 and 68.6 in Q3 of this year, the corresponding increases in outstanding debtors' days amongst all companies in South Africa has been from 49.0 to 54.7 days over the same period - much less pronounced. Debtors' days measures the average outstanding period in days that businesses take to repay their debt. A higher debtors' day value points to an environment where firms are taking longer to repay their outstanding debt obligations.
This suggests that the weak state of overall economic activity is impacting far more negatively on small businesses than on the overall business sector.