Government’s Late Payment Impacts SME Cash Flow

Government’s Late Payment Impacts SME Cash Flow

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A study by the South African Chamber of Commerce and Industry (SACCI) on late payment by government to service providers found the majority of providers had experienced a delay of 30 days or more. However, there are providers who are paid timeously.

60% of SMEs supply Government

The survey, undertaken among Sacci members in response to government’s efforts to curb late payments, found that 60% of small businesses regularly supplied goods or services to government, while less than 10% relied solely on business from the State.

It found that, in response to late payments by government, 35% of the companies preferred to hold back on the provision of services or goods until the payment of the previous invoice has been completed. Less than 15% would opt for a deposit before services or goods supply, while 23% would offer discounts for early payments and penalties for late payments. The remainder would resort to friendly payment reminders.

Government needs to pay promptly

The prompt payment by government to providers of goods and services is crucial to ensuring the stability and growth of South Africa’s business sector, especially the SME sector that has less of a cash buffer to withstand protracted periods of delayed payments.

This issue has been highlighted in various official discussions by senior government officials.  However, the survey shows clearly that late payment is the norm rather than the exception. The question is therefore not so much on government committing to prompt payment, but rather the implementation of processes that ensure government meets this commitment.

Proposed solutions

  • The prompt payment by government should be a primary mandate of the proposed Chief Procurement Officer.
  • All Government departments should be audited on adherence to the 30-day rule and such assessments should be included in their annual reports.
  • The promptness of payment should become part of government leaders’ performance agreements.
  • An immediate system of referral to an independent Government Procurement Ombudsman where the government payments is in arrears of 60 days or more.
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