JOHANNESBURG - Government is considering allowing small business who do business with the state to be able to charge government interest over late payments often associated with public procurement.
National Treasury in an economic policy paper released for public comment yesterday said small businesses should be supported through public procurement.
“Late payments by government to small business should be addressed (perhaps by allowing for automatic addition of interest on outstanding balances after a certain period). Governments and state-owned entities need to, where possible, draft tenders to create greater opportunities for small business,” National Treasury said.
“Acting as a sub-contractor to a large firm is one way for a small business to enter global value chains and to get into longer-term contractual relationships that can unlock access to credit—a dispute resolution mechanism in the Chief Procurement Office or a separate ombudsman can improve oversight and monitoring of subcontracting relationships.”
Government has struggled to live up to its own regulations to pay suppliers within 30 pays of the work having been done.
The delayed payments usually put small businesses under immense pressure due to constrained balance sheets.
Daniel Goldberg, co-founder of Bridgement, a Fintech company offering digital invoice financing to small business suppliers said Small business suppliers lack bargaining power when dealing with established businesses and government.
“Given their size, SMEs cannot afford to ruin these relationships – even when payment is pushed out by as many as four months. “Every late payment has a material impact on a small business. Salaries don’t get paid, raw materials can’t be purchased, and fewer new projects can be taken on,” said Goldberg.