South Africa’s small business growth could be severely hampered by a culture of late payments. Unfortunately, one of the biggest culprits is the government. Provincial government departments paid over 23,000 invoices late in 2016, totalling more than R2 billion. The number of invoices paid late by national departments also rose from over 13,400 in September 2015 to nearly 14,900 in September last year. Although there is some progress, the South African government needs to lead by example and stamp out the late payments culture.
Xero’s latest research shows that getting paid is the number one financial challenge for half of South Africa’s small businesses. This results in both increased stress and reduced productivity. On average, these businesses spend 10.4 hours a month on debt recovery — an inefficient allocation of resources. This is time businesses could be using to develop growth strategies and deliver quality customer service.
With no access to capital, cash flow issues aren’t just bad for growth, they can also kill a business. This could have far-reaching consequences for an economy that showed only muted signs of recovery in the third quarter of 2016.
How small businesses matter
The small business sector is recognised globally for its contribution to job creation and economic growth. However, South Africa’s 2016 National Small Business Survey found that 76% of businesses under 5 years cited access to funding as their biggest obstacle to growth. In this environment, late payments are an additional financial worry for SMEs. However, the success of small businesses will lead to the success of South Africa’s economy. SMEs currently contribute an estimated 53% of GDP and employ 60% of the workforce. Eradicating the negative trend of late payments is key to boosting this success.
It’s welcome news then that the government is taking steps to improve its poor payments record. Jeff Radebe, the Minister in the Presidency for Planning, Monitoring and Evaluation, has gone on record to acknowledge that timely payments from government to service providers are necessary to achieve the country’s economic growth targets. Radebe has noted that the National Development Plan, which aims to create 11 million jobs by 2030, is linked to the growth and development of the small business sector.
“This [job creation] will not be possible if we do not aggressively support the growth and development of the small business sector”, said Radebe. “Our government is fully aware of this challenge.”
The entire onus does not, however, rest on the debtor. Small business owners should also take steps to minimise the impact of late payments. With the right information and tools to help improve cash flow and end late payment related problems, small businesses will be stronger. And so too will the economy.
It’s time to change the way businesses deal with invoice payment. Visit chasingpayments.co.za to find out more.
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Source: Xero
