Tackling South Africa’s late payments culture

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Small and medium enterprises (SMEs) account for roughly half (47%) of South Africa’s workforce and contribute more than 20% to the country’s GDP. But, between a slowing economy and periodic social-political uncertainty, small business is often stuck in the middle.

This crucial area of our economy faces a multitude of challenges that often leave them teetering on the edge of success or failure. One such challenge is late payments.

To get a better understanding of the scale of late payments we surveyed over 500 business decision-makers in South African SMEs. Disturbingly, we found that 91% of SMEs are currently owed money outside their payment terms and are owed, on average, R99,801 at any given time. This equates to a staggering R249.5 billion* nationally.

Let’s take a closer look at the impact and how we can all work to reduce this late payment culture.

The business and human impact of not being paid on time

Late payments aren’t just a nuisance. They’re often the root cause of negative cash flow, which means companies can’t hire new staff, invest in new technology, or pay the bills that keep the lights on. This ripple effect also impacts a firm’s credit score, making it harder to raise funds.

A fifth of the businesses we spoke to have struggled to pay for business critical services or their suppliers due to late payments, and 19% have been held back from investing in growth and innovation. Shockingly, 17% have even faced bankruptcy as a result.

We talk a lot about how late payments affect financials and growth, but another conversation – one that’s often lost amid all the talk about lost revenues – is the human cost of late payments. Our research revealed that 20% of SME owners had to take time off due to illness because of business pressure.

Closing the door on late payments

We need a collective effort to tackle this culture of late payments, and technology has a huge role to play in helping businesses get paid on time.

To help, we’ve teamed up with some partners across the industry – our Late Payments Task Force – to offer their advice on the processes and actions SMEs can take. These include Outsourced CFO, SAICA and SNG Grant Thornton. Here is a snapshot of their 5 top tips:

Be selective about who you work with. Credit check prospective clients. A bad credit history could indicate issues with late payments in the future.
Don’t underestimate the value of courteous follow-ups. Cloud tools can make this a seamless effort by scheduling follow-ups, and allowing you to see who owes you money – from anywhere, at any time.
Implement interest charges on late payers. This encourages prompt payment.
Set automated responses. Automating the process of sending a reminder email reduces the amount of time spent waiting and chasing for payment.
Invoice early. Get recurring clients to agree to a debit order payment on the first or 15th of the month.

Late payments can make or break South Africa’s small businesses. With greater awareness and the right technology, we can work together to ensure our SMEs get paid on time.

For more advice, read our research report, The State of Late Payments in South Africa – Forging a positive payment culture with new technology.

*Calculated by multiplying the estimated number of SMEs in SA (2.5 million) by R99, 800 (the average amount in late payments owed to small businesses at any given time). This amounts to R249.5 billion.

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