The new State of Late Payments report stated that on average, SMEs wasted 89.5 working hours per year chasing late payments. Photo: Steve Buissinne/Pixabay

CAPE TOWN – Xero, the global small business platform, on Thursday released new research that reveals South Africa’s small to medium businesses (SMEs) are each owed R99,800 in late payments at any given time according to their business decision-makers. 

Given there are an estimated 2.5 million SMEs in South Africa, this means the national scale of late payments could equate to a staggering R249.5 billion, according to the research, which represents the opinions of 502 business decision-makers in SMEs. 

The survey research, conducted by Censuswide in South Africa between October 11 and 24, 2019, revealed these key findings:

●     17 percent said that the month of May carried the highest number of outstanding invoices
●     Just over a fifth (21 percent) are struggling to pay for business-critical services
●     21 percent were refused access to finance because of late payments
●     19 percent are prevented/held back from investing in the business, innovating and growing

The new State of Late Payments report revealed that a staggering 91 percent of small businesses were owed money outside of their payment terms. The report stated that on average, SMEs wasted 89.5 working hours per year chasing late payments.

Colin Timmis, general country manager, Xero South Africa and professional accountant said It was not right, or fair that SMEs had to deal with late payments. “They live or die by their cash flow – and if they’re not paid, they can’t survive. Just think what they could do with an extra R99 800, it could contribute towards a salary or pay for some new technology.”

The National Development Plan aims to create 11 million new jobs in South Africa by 2030, and  wants SMEs to generate 90 percent of these new roles. However, this new research shows that if late payments are not tackled, growth may be stifled. 

The report found that more than a fifth (21 percent) of respondents that had invoices paid late said they struggled to pay their suppliers on time, and a similar amount (20 percent) said they struggled to pay their staff. Nearly half (47 percent) listed cash flow and late payments as one of the main threats to their long-term growth aspirations.

Experts said getting paid on time would help entrepreneurs invest and grow their business. When asked what they would do with the late payments owed to them, a third would clear some debt (30 percent), increase headcount or raise salaries (38 percent) and invest in new business technology (29 percent). Such technology could be the key to tackling the late payment epidemic, according to the report.

“It’s really positive to see that SMEs want to invest in new tech and growing their teams. But for this to happen, we need a collective effort to tackle this culture of late payments. There are some actions SMEs can take now to help reduce the burden; make sure you invoice early, use cloud accounting software to send automated payment reminders, and lean on your accounting partners for advice,” Timmis said.

SMEs are lauded as the backbone of any economy and collectively they are the largest employer and contributor to sustainable income for millions of households. Yet in reality, they are the pariahs of big business and the outcasts that bear the brunt of a capitalist world that favours the established and moneyed, according to Thulisile Phiri, the founder and managing director of The African Storyteller.

The African Storyteller is a strategic business communications firm based in Johannesburg that supports investors to grow their brand’s footprint across Africa.

Phiri said the fact that about 50 percent of small businesses fail to survive beyond their second year of doing business says it all.

“Everybody thinks they know what it takes to run a successful small business, but the government and all external stakeholders need to get into the business of asking small business owners about their pain points. 

“If we actually take the time to listen to what our entrepreneurs need in order to make it past two years of trading, we can grow lasting businesses and change the South African economy for the good of everyone,” said Phiri.

BUSINESS REPORT