- Late payments place immense pressure on small businesses, which rely on steady cash flows to maintain operations.
- As the slow payment contagion spreads through the economy, it kills small businesses.
- Black Business Council CEO Kganki Matabane said slow payments created conditions for corruption.
A few months before the Covid-19-induced lockdown, I received a frantic call (as happens all the time) from Lethabo of ABC Construction (not their real names), a small black business that had just failed. They paid off their workers and locked the doors.
Lethabo owes hundreds of thousands of rand to the bank, suppliers, family, and friends. She may lose her car and house. But on paper, the business is viable. Actually, it is making a tidy profit. Except for one thing - she can't collect from her debtors who owe ABC more than R20 million.
Some haven't paid for 24 months - even though they have the money. Without deep pockets, endless credit, political connections, or lawyers to chase payment, Lethabo's dream of being a successful black entrepreneur has died. From employing 45 people, she now joins them and millions more on the job market. A dream denied by late payment. It should not have ended this way.
It is laudable that more than 50 big businesses have signed up to Business for South Africa's (B4SA) #PayIn30 campaign to pay small business suppliers within 30 days. Every late payment compounds the economic devastation of Covid-19. It puts immense pressure on small businesses, which rely on a steady cash flow to maintain operations.
Before considering the government, let's talk big businesses. They have the balance sheets, the cash flow, the budgeting capacity, and access to credit to institutionalise a culture of early payments. So, where is the resistance?
Business schools teach you to bank your own cash first and delay your payments to suppliers as long as possible. Businesses use "extended payment term" strategies to preserve cash and capital. And it makes business sense, up to a point. We have passed that point.
While standard payment terms are 30 days, some large corporates and state entities take longer than 120 days to pay small medium enterprise (SME) suppliers. In effect they use SMEs as providers of interest free loans. But many cannot absorb the costs and perpetual debt created by slow payers. They don't survive.
At the Black Business Council (BBC), which is part of B4SA, we are contacted daily by distressed black businesses appealing for help. They own legitimate and viable businesses. But they lack bargaining power. Because they are small, SMEs can't risk ruining relationships with established businesses and the government by demanding payment - even when payment is outstanding for a year. So, they wait. And beg. And get deeper into debt. Salaries and rentals aren't paid, and raw materials aren't bought. So fewer new projects commence. Commercial lethargy slithers through their business network biting their even smaller suppliers.
The slow payment contagion then spreads through the economy killing businesses as it goes. Without successful smaller businesses, we won't have economic growth or an enabling ecosystem for big business. Our big companies need tens of thousands of flourishing small businesses as suppliers of goods and services, but also as the employers of tens of millions of salaried citizens. The equation is simple. Fewer small businesses, equals less economic activity and fewer customers and suppliers for big business. It is in the collective interests of big business to pay quickly too.
Turning to the government.
Government and state-owned entities' (SOEs) policy, innumerable speeches and promises in Parliament all say "pay SMMEs within 30 days". Does this happen? No. Small black business rightly looks to the government for policy and practical support to gain access to markets and opportunities. But on payments, we stand alone facing a brick wall of bureaucracy. Why aren't we paid on time? Is it incompetence, incapacity, a lack of political will?
We must be honest about the link between slow payment and corruption. When state entities pay slowly, they create desperation among their suppliers. Yet the personal protective equipment (PPE) debacle shows, some favoured suppliers can be paid within days - even hours. Speed is possible. What signal does this send? Is it unreasonable to conclude that slow payments may be a tactic by a corrupt few to force desperate suppliers to cut corners to survive?
Clearly, slow payment creates the conditions for corruption. Cut out slow payment, cut out the temptation. Government departments and entities should be transparent about their payment terms and held to account for late payments.
Which brings me to transformation. Most black businesses are small businesses. We will transform our economy when tens of thousands of small black businesses become tens of thousands of medium-sized businesses. Some will consolidate and become large businesses. Black businesses which aren't paid don't grow, they stagnate and then die. By not paying on time, government entities make a mockery of our efforts to transform ownership and management of the economy. Quick payment will unleash black business.
This is why the Black Business Council fully supports the #PayIn30 campaign. We all know that SMEs are a cornerstone of the economy and the backbone of the black business class. So, if the country is serious about job creation and economic growth; if we are serious about economic justice and transformation; if we are serious about recovering from our "economic Covid", then we need to change the culture of business and government and pay SMEs in 30 days.
* Kganki Matabane is CEO of the Black Business Council. Views expressed are his own.