Making payments on time will help keep SMEs alive
Cash flow makes or breaks a small business. If one does not have the cash to pay expenses and salaries, then one's business can't survive.
Simply put, no cash equals no business.
A small business, low on cash will make late payments to suppliers and employees and often miss tax payment deadlines, so incurring costly penalties. It can't pay what it doesn't have.
President Cyril Ramaphosa highlighted the issue of late payments during his 2018 State of the Nation Address, pointing out that government should remove barriers to entry to small businesses.
He stated that: "It is clear that the failure of some government departments to pay suppliers within 30 days has a devastating impact on small and medium-sized businesses (SMEs).
This is something that I want to see addressed as I visit government departments, because the culture of late payment has gone on for far too long and has caused far too much damage, particularly to emerging black businesses."
In replies to DA parliamentary questions, government and state -owned enterprises (SOEs) admitted they owed their suppliers R7.7-billion in unpaid invoices as of December.
This is money which is lost to the economy and should instead be circulating within the supply chains of SMEs.
The State of South African Small Business report 2017 confirms that cash flow is the second-biggest challenge small businesses face and 35% of respondents said that cash flow issues "keep them up at night".
A recent Sage study, "Late Payment: The Domino Effect", found "more than 8% of payments due to the country's small and medium businesses are never made or made so late that businesses are forced to write them off as bad debt". The report continues by highlighting that "52% of South African small and medium businesses experience direct negative impacts from late payments".
To address these problems, I am drawing attention to a suite of solutions which, in combination, will provide small business owners with relief from the constant bullying at the hands of uncaring government and big business.
The National Small Business Chamber (NSBC) has championed the Prompt Payment Code, which strives to ensure payments to SME suppliers within 30 days. The DA fully endorses this code.
The code is a commitment, not a legally enforceable obligation. It focuses rather on the reputational gains from good business practices.
Late payments are often due to customers preserving their own cash flow at the expense of their suppliers.
Supply Chain Finance (SCF) is a mechanism that improves cash flow across the supply chain. SCF allows an SME supplier to secure its money earlier by piggybacking on the creditworthiness of a buyer.
SCF can unlock billions of rands of working capital across supply chains in all sectors of the economy, and so help small businesses grow and create more jobs.
I will soon be introducing the Small Enterprises Ombud Service Private Member's Bill, establishing an ombudsman to resolve disputes quickly, cheaply and efficiently. Notice of this bill was gazetted on May 10, giving 30 days for comments and suggestions before the final bill is drafted.
These three interventions are practical, achievable means by which small businesses can address some of the most pressing challenges facing them.