50 large companies in South Africa commit to paying SMEs faster

In excess of 50 large companies in South Africa have formally committed to paying their small and medium sized businesses (SMEs) suppliers within a 30 day period, as part of an effort to ensure SMEs survive the economic crisis.

The initiative is spearheaded by Business for South Africa (B4SA), the SA SME Fund, and Business Leadership South Africa (BLSA), and supported by, among others, Business Unity South Africa (BUSA), the Small Business Institute (SBI) and the Black Business Council (BBC).

The big businesses taking part in the initiative include: Sasol, Massmart, Allan Gray, Aspen Pharmacare, AngloGold Ashanti, BP Southern Africa, FNB, Gold Fields, Liberty Holdings, OUTsurance, Remgro, and Sanlam, among others.

The recession and pandemic have had a devastating impact on the approximately 2.5 million SMMEs accounting for 10.8 million jobs.

Transunion data points to 6.4% of formal SMEs going into bankruptcy (up 50% from last year), with 260,000 jobs lost and another 240,000 at risk.

With a tightening economy, the benefits of the banks’ payment holidays coming to an end, and the winding down of the Temporary Employer/Employee Relief Scheme (TERS), this is expected to rise to 10-15% of small businesses going into business failure next year, with almost a million jobs lost and at risk.

Even before the crisis, one of the key pressure points for SMEs was access to working capital and cash flow: Xero Accounting’s survey in December 2019 found that 91% of SMEs are owed money outside of their payment terms and 47% cite cash flow issues and late payments as two of the main obstacles to their growth.

This has a domino effect: more than 20% struggled to pay their staff and suppliers, and were denied access to finance because of poor cash flow.

The Covid-19 pandemic has exacerbated the problem. Some companies have used the crisis to extend payment terms and have asked SME suppliers to reduce fees. This is simply not sustainable for smaller businesses. Corporate South Africa recognises that paying their SME suppliers in 30 days is one of the key levers for an SME’s sustainability.

Busi Mavuso, CEO of BLSA, said that the initiative is aimed at institutionalising a culture of early payments of SMEs. “Over 50 companies have committed to this campaign, and we expect this number to increase in the months to come. I am proud that our members recognise that we’re all in this together, and as corporate leaders, we need to do our part to help our economy grow.”

Adrian Gore, CEO of Discovery Group and Chairperson of the SA SME Fund, said: “Paying our SME suppliers early is a clear demonstration of a shared value approach to business. As a society, we need to start implementing bold actions to grow our economy and preserve and create jobs. I believe entrepreneurs are a powerful force and an integral part of this rebuilding. We need to support them. Hence I’m calling on my fellow CEOs to join us in this significant initiative.”

Allan Gray, chief executive, Rob Formby, said: “The SME sector employs about 47% of South Africa’s workforce and accounts for 20% of GDP and has the potential to play a critical role in our country’s economic recovery and future growth.

“Cashflow is key – and these small businesses are heavily reliant on being paid for their services so that they, in turn, can pay their staff and replenish supplies. Large corporates like ourselves can make a big difference by simply paying on time; a relatively small thing. I encourage others to do so to help this sector survive and thrive.”

BP Southern Africa, chief executive, Taelo Mojapelo, said: “We continually foster a responsible payment culture within BP Southern Africa. We have therefore committed to work towards adopting a 30-day payment term as a standard for SMEs. This is particularly important in this challenging time of Covid-19 where business, especially SMEs are experiencing cash flow challenges, with some on the brink of collapse.

“I believe we have a responsibility as big business, to support small businesses in recovering from the impact of Covid-19, and responsible payment terms and payment processes for services rendered will be critical. We are passionately driving this within  BP SA and constantly engage our service providers about compliance to BP’s invoicing and billing procedure to avoid payment delays.”