SMMEs bear brunt of 'long' payment cycles
SMALL supplier businesses are bearing the brunt of tough economic conditions, Andy Bryant of the Chester Finance Group said.
During the global recession, big companies and multinationals are the ones hard hit by the meltdown while small businesses are able to weather the storm due to their size and adaptability.
Bryant said while 2012 promised to be an eventful year in international trade, the general results of a harsher trading environment will have significant implications for the survival of Small Medium and Micro Enterprises and supplier businesses.
"SMMEs in the service, retail, wholesale and manufacturing sectors are recognised by government as sectors that will facilitate South Africa's long-term growth and employment prospects. However, difficult trading conditions threaten this vital sector," Bryant said.
The SMME market is crucial in providing both private and public sector with goods and services and payment for these is essential for their sustainability.
"Recent media attention relating to the woes of the Limpopo provincial government and the Gauteng health department indicate that this trend of longer payment cycles is not restricted to the private sector.
"Because of the extended payment cycles, smaller businesses are forced to either dip into their reserves or access credit in order to fund business operations while they wait for payment from clients.
"The problem is that as payment cycles are continually extended, smaller businesses bear the brunt, and often result in them having to decrease their overheads or, more critically, curb their growth in order to survive," Bryant said.
"In addition to these extended payment cycles, SMME's also face another trend which has a direct impact on their income and cash flow.
"In order for the smaller service providers to maintain a business relationship with their clients, they are not only accepting the extended payment terms, but are also bowing to the pressure of not charging late payment penalties or interest rate charges on outstanding funds," he said.
"Potential solutions to relieving this pressure include ensuring a good client spread and ensuring a good relationship with your large debtor such that you will be first in the queue for payment."
"Because of the pressure to keep business relationships good in order to ensure future business and income, smaller businesses are being bullied, or making the decision themselves to bow to the requirements of their customers without much negotiation. The implication of this is that a far greater strain is placed on SMMEs."