President Jacob Zuma’s commitment to ensuring that government departments pay small and medium enterprises (SMEs) within 30 days, made during his recent State of the Nation address, should be embraced by South Africa’s small and medium enterprises (SME) sector.
This is according to Gerrie van Biljon, Executive Director at Business Partners Limited, who says that prompt payments by state departments will relieve the mounting pressure that SMEs are currently under, and may even alleviate the rate of SME closures in South Africa.
He says that while this announcement was first made four years ago, it is important for the President to reiterate the message. Late and protracted payments by state agencies have put many SMEs under unnecessary pressure over the past few years and, in many instances, led to the failure of otherwise sound companies.
“As it is estimated that small and medium-size enterprises generate half of gross domestic product (GDP) and nearly 60% of employment locally, this commitment is very positive for our economy. The proposed monthly reporting system that President Zuma discussed could go a long way in keeping track and monitoring the situation.”
He says that some government departments might not realise the negative effects that late payments can have on SMEs. “While payment delays can be easily absorbed by larger companies with access to credit, late payments could have potentially devastating consequences for small firms, which struggle with cash flows and cannot easily secure overdrafts or bridging finance.”
He says that while government’s commitment to paying on time should be welcomed, it is important for SMEs to remain vigilant and advises the following steps for business owners to protect themselves against late payments.