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What Is The Impact Of Late Payments On Your Business’s Sustainable Growth?

As one of the largest accounting professional bodies in the world, we at ACCA have a birds-eye view of the key issues affecting SME business performance.

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Today’s economic and political environment places a number of challenges upon entrepreneurs and small businesses growth. One of the most prominent is uncertainty – and the impact this has over the cost of doing business.

This has the potential to affect the ability of businesses to access finance, invest, export, and ultimately, grow. Consequently, the provision of tailored guidance and business support plays a vital role towards shaping the prospects of small businesses at an individual as well as the wider growth prospects of the South African economy as a whole.

Chartered accountants play an equally important role in this regard. Research indicates they remain entrepreneurs and SMEs’ most trusted advisors, with half of those small companies in the UK that have sought business support having approached their accountant. And as one of the largest accounting professional bodies in the world, we at ACCA have a birds-eye view of the key issues affecting SME business performance.

Problem of poor payment practise

Perhaps one of the biggest problems we hear about from small businesses and entrepreneurs is poor payment practice. Delayed payment affects businesses in a number of ways.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

Evidence clearly shows that it reduces business productivity, with businesses that would otherwise be spending time growing and investing in their business instead chasing debts owed to them and being a substantial distraction to business staff.

Part of the reason for this is because small businesses suffer from a lack of bargaining power when dealing with established businesses and government because they do not have the resources (time, labour or capital) to dedicate to dealing with relevant disputes.

Typically, in a small business, all resources are focused on growing and sustaining the business and in particular, maintaining cash flow. Further resource is targeted at meeting key legal requirements, such as paying tax or regulatory compliance.

Small companies are, therefore, often relatively unsophisticated when dealing with contractual issues and no better able to protect themselves than individual consumers.

Remedies

Both for small businesses and the South African economy, this is unacceptable practise. The knock – on effect results in potential job losses, unsustainable businesses and might in the long term translate the SME sector as a weak contributor to economic growth, increase barrier to entry and thus reduced competition in sectors where the late payment is rife.

At the moment, poor payment practice is not taken seriously enough in the boardrooms of larger companies. Given the impact of poor payment practices by large companies on smaller ones, it is essential late payment becomes a central focus for policymakers going forward.

Suppliers can protect themselves through careful due diligence and in-depth receivables analyses building on ageing debtors reports. They can make more realistic

provisions for bad debt, informed by first-hand information gathering, and incorporate these into regular cash projections. There is also a lot that they can do to improve the administration of receivables, from better understanding of customers’ systems and the use of automation to bringing in outside expertise on credit control and collections.

Related: 7 Factors To Determine Who Are Your Employees (And Who Aren’t)

For suppliers, the fight against late payments continues with contract design: Businesses should ensure that their terms of credit are clear and explicit and that contracts give them appropriate rights over goods that remain unpaid for, as well as the right to withhold services or delivery as appropriate. Even the methods of payment can make a significant difference and must be specified in advance.

In addition, despite receiving very unfavourable press coverage, prompt or early payment discounts can be an acceptable means of aligning prices with the cost of servicing individual customers – as long as they are not imposed unilaterally and at short notice. Managing early payment discounts is easily managed in QuickBooks.

Financing and liquidity insurance is a major element of the fight against late payment, and small suppliers in particular need to replicate to the extent possible the protection provided by the internal cash pools of diversified business groups.

Exploring and securing alternative sources of finance (including factoring and trade credit insurance) is important, but ultimately directors must be alive to the implications of providing credit to major suppliers and be willing to take on some risk through equity injections.

Finally, suppliers need to be able to distinguish quickly between late payment and genuine credit risk. There is often no substitute for first-hand inspection and probing. When customers are struggling but ultimately viable, forbearance can work.

Businesses should seek to shield themselves from further cash disruption and reduce services to struggling customers but should also use payment plans to maximise recoveries and help customers surmount their problems.

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

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The Alfa Romeo Stelvio – More Than An SUV

The All-New Alfa Romeo Stelvio draws inspiration from the legendary mountain pass linking Italy to Switzerland, with 48 hairpins in quick succession.

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The All-New Alfa Romeo Stelvio draws inspiration from the legendary mountain pass linking Italy to Switzerland, with 48 hairpins in quick succession. The Stelvio pass is widely seen as one of the most beautiful and engaging roads on the planet.

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Enhance Your Entrepreneurial Flair With An Online Postgraduate Diploma From The University Of Pretoria

The Department of Business Management at the University of Pretoria, a leader in business management education, will be offering an Online Postgraduate Diploma in Entrepreneurship for the 2018 academic year with some seminars to enrich your action learning experience.

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The Department of Business Management at the University of Pretoria, a leader in business management education, will be offering an Online Postgraduate Diploma in Entrepreneurship for the 2018 academic year with some seminars to enrich your action learning experience.

The programme content focuses on the start-up processes, creativity and opportunity recognition, business planning and marketing as well as financial management. Furthermore, the programme emphasises entrepreneurial growth and small business policy development with relevance to the enabling environment.

Who should enrol?

The programme is designed for pre-, nascent and start-up entrepreneurs who want to attain an advanced degree in entrepreneurship. It is also intended for individuals who work in an entrepreneurial environment and are involved with small business policy development. Although many students in the programme have academic credentials in entrepreneurship or business management, the programme is also appropriate if your education and/or experience may be in other disciplines (e.g. engineering or medicine).

Admission requirements

A relevant bachelor’s degree.

Related: This Enterprises UP Expert Explains Why Start-Ups Really Fail

Additional programme information

The duration of the course is one year. The language of tuition is English and the course will be presented in two blocks by means of the blended learning method (70% online and 30% contact sessions). Students need continuous access to the internet to complete the course.

Course Contents

Overview of modules for Block A

  • Ideation-to-market: Starting up
  • International Business Venturing
  • Venturing Strategy Building (Part 1)

Overview of modules for Block B

  • Entrepreneurial Marketing
  • Entrepreneurial Supply Chain Management
  • Entrepreneurial Finance
  • Venturing Strategy Building (Part 2)

Click here for more information.

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Win A Business Makeover With Retail Capital To The Value Of R250 000

Retail Capital is giving SMEs an opportunity to win a makeover to build their brand with an investment of R250,000.

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Retail Capital is giving SMEs an opportunity to win a makeover to build their brand with an investment of R250,000. During the summer campaign, SMEs are encouraged to share the vision of how they would like to see their business grow, and led by a team of experts, Retail Capital will work with the winning SME to help make their vision come true.

While South Africa’s economy is not faring well, Retail Capital CEO Karl Westvig remains optimistic about the country’s retail and hospitality sectors. “We are seeing some green shoots, with an increase in turnover in these sectors – starting from the end of September. Economic conditions remain very tough, but businesses seem to be trading well into October and we’re hoping this continues into the festive season trading.”

According to recent statistics from Statistics South Africa (Stats SA), South Africa’s retail sales rose by 5.5% year-on-year in August 2017, following a downwardly revised 1.6% gain in the previous month and above market expectations of 2.3%. It is the biggest gain in retail trade since August of 2012.

Related: How To Raise Working Capital Finance

“I do believe that these sectors will see an improvement during the summer season. But, key to this will be for small business owners to ensure that they have the right amount of stock, adequate cash flow, as well as other systems in place to meet the ever-changing needs of customers,” says Westvig.

For many small businesses, however, continually adapting to market changes requires cash injections that they don’t often have.

The prize includes the following:

  • Business plan/consulting
  • Marketing strategy
  • Design and branding
  • Website and social Media and,
  • R50k capital to gear your business.

Westvig explains that the summer campaign tagline ‘Your Vision. Our Belief’ really speaks to why Retail Capital first opened its doors. “Our goal is to see the potential of small businesses and to work with them in making these become a reality.”

He adds that the idea is not to simply help one business during the campaign either. Westvig points out that one of the biggest challenges that small businesses face in the sluggish economy is enough foot traffic through their doors. “Generally, the main hurdle in creating brand awareness and projecting credibility of their establishments boils down to establishing a strong online presence.”

“One of the first ways that South Africans identify a business or service provider that they want to work with is over social media – even in a country where the digital divide has traditionally separated the technological haves from the have-nots,” he says.

He explains that companies that don’t have a social media presence are running the risk of being overlooked entirely. “They may attract customers in their own community with signage or word of mouth, but to grow a business, they need to expand their reach – and that’s where social media comes in.”

But, the reality is that resource and time constraints mean that for many SMEs, social media is not prioritised. “Unfortunately for the average small business owner, they don’t have the time or expertise to get connected.”

Understanding the importance of having an online presence, Retail Capital has also committed to developing the digital presence of all campaign entrants. This would include setting up each entrant’s digital presence on platforms such as Google, Facebook, Twitter, Tripadvisor, Zomato and any others that may be relevant to their specific market or industry.

“As a partner to many SMEs in South Africa, we are continually looking at new and innovative ways to help provide them with the much-needed support in order for them to realise their visions. SMEs need to be supported with initiatives like targeted education and training, supportive legislation, and funding opportunities that collectively help them grow our national economy,” says Westvig.

Related: 6 Great Tips For A Successful Shark Tank Pitch

Who we are and what we do:

“More than R1.25 billion has been extended to a range of businesses including food trucks, hair salons, restaurants, spas and franchised retail stores. Many of these businesses have not been able to raise funding in any other way, other than to go to unscrupulous lenders,”says Karl Westvig, the CEO Retail Capital, a company that provides working capital with the help of innovative lending technology.

“We have also estimated that for every R160 000 we lend, we create a new job. This means that 625 jobs have been created purely by enabling small businesses to get the funding they need for working capital requirements or expansion opportunities.”

Retail Capital’s system, which enables it to advance funding to small businesses, based on real time information on credit card transactions, is providing a new funding alternative to entrepreneurs who have previously been turned away by banks. Because it is able to get actual sales information, it can approve funding immediately, and allow for flexible repayment options based on sales cycles of the particular businesses it is funding.

“This creates significant opportunity for small business owners to focus on their business and grow volumes or look for expansion opportunities rather than spend their time frantically trying to repay debt or keep the business alive after debt repayments have eaten away at any cash reserves they might have had.”

Retail Capital funding is repaid by it taking a percentage of a business’s recorded credit or debit card sales, with repayments fluctuating in line with their business cycle. This has the effect of ensuring that it isn’t overburdened with debt.

“In the past six years since starting the business, small businesses have had the benefit of R1 billion in funding they would have been unable to get through traditional channels,”says Westvig.

Against the backdrop of recessionary conditions in South Africa, Retail Capital’s client information reveals growth in informal sector turnover across a number of industries.

“We believe that growth in the informal sector is outstripping that of the formal sector,”says Westvig.

As a large proportion of the businesses it funds are women- and black-owned, there is evidence that entrepreneurs who have previously been excluded from access to finance are now enjoying success now that their access to finance problem has been solved.

Win A Business Makeover with Retail Capital

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