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Several business entities have launched a campaign to ensure a culture of advance payments to SMEs, for their survival.
- Fifty companies have agreed to pay small and medium-sized companies within 30 days.
- Small businesses have been struggling with late payments and cash flow problems, risking bankruptcy.
- Business organizations expect 10-15% of small businesses to go out of business next year.
In an attempt to keep small and medium-sized companies afloat amid the economic crisis, business organizations have launched a campaign to guarantee payment within 30 days so that entrepreneurs can avoid bankruptcy.
The # PayIn30 campaign was launched by Business for South Africa, Business Leadership South Africa and SA SME Fund. It is also supported by Business Unity South Africa, the Small Business Institute, and the Black Business Council.
According to a joint statement issued by business bodies on Tuesday, 50 large companies formally pledged to pay supplier SMEs within 30 days. “Corporate South Africa recognizes that paying its SME suppliers in 30 days is one of the key levers for the sustainability of an SME,” the statement read.
The initiative arises given the negative impacts of the Covid-19 pandemic on the South African economy. The economy is projected to contract between 7% and 13% this year, the worst economic performance in 90 years. South Africa’s unemployed number 6.5 million and consumer demand remains subdued.
Referring to data from TransUnion, business organizations highlighted that 6.4% of formal SMEs have declared bankruptcy this year. This translates into 260,000 jobs lost and another 240,000 at risk.
A series of aid measures in place to help businesses and individuals are coming to an end, including the Temporary Assistance Scheme for Employers and Employees. Banks’ pay holidays are also coming to an end, the statement said. Business bodies estimated that 10-15% of small businesses could fail next year, risking millions more jobs.
Before the Covid-19 crisis hit, small businesses were already struggling with late payments that affected cash flow. “The Xero Accounting survey of December 2019 found that 91% of SMEs are owed money outside of their payment terms and 47% cite cash flow problems and late payments as two of the main obstacles to its growth”. Limited cash flow, in turn, affects companies’ ability to pay staff and their suppliers.
Busi Mavuso, CEO of BLSA, commented that the # PayIn30 initiative would institutionalize a culture of advance payments to SMEs. “More than 50 companies have committed to this campaign and we expect this number to increase in the coming months.”
Among the 50 companies that have pledged are financial service providers Allan Gray, FNB and Alexander Forbes, mining companies Sibanye Stillwater, Gold Fields, Implats, chemical and energy company Sasol, BP and Total, as well as hospital groups Mediclinic and Netcare.
“If no money comes to an SME from its customers, there is no money with which to pay its employees, lenders or its own suppliers. The domino effect of late payments affects the entire economy. That is why Advance payment terms for SMEs are critical, “said Aspen Pharmacare Senior Executive Stavros Nicoloau.
