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SMALL BUSINESSES: BE PROACTIVE AND KNOW YOU WILL GET YOUR MONEY ON TIME

SMEs are often at the mercy of large customers which hurts cashflow.

Small and medium enterprises (SMEs) are an important part of the economy, but they are vulnerable to cash-flow difficulties. Late payments can have a sometimes fatal impact on SMEs so automated invoicing is vital, says Jolawn Victor, head of emerging markets at Intuit QuickBooks.

Late payments are one of the biggest challenges for SMEs around the world, with some countries going as far as suggesting legislative changes that would criminalise late payments while others are considering a public register of payment behaviour.

This is because SMEs are vital for all economies, and especially in South Africa where there is a desperate need to revitalise the economy and create jobs.

On the flip side, the very same economy that needs SMEs to thrive is also the reason many large businesses use SMEs as a line of credit.

Businesses need cashflow to pay staff overheads, utilities and buy raw materials, and going long periods without payments can threaten a small company.

The Small Business Institute (SBI) asked the top 100 companies on the Johannesburg Stock Exchange, about how they pay SMEs.

Only 1 in 10 said they made that kind of information public, and only a quarter reported a specific policy to pay SMEs within 30 days. A tiny proportion said they pay within two weeks. Of SMEs surveyed, the SBI said as many as 40% of late payments eventually get written off as bad debt. On average, payments were made 100 days after the 30-day target.

While these figures come from the second quarter of 2019, it is unlikely that the situation has changed. Victor says while small business owners cannot control the behaviour of those that owe them money, there are a few steps businesses can take.

“These include sending out invoices timeously and ensuring payment details and terms are clearly defined and stipulated. SMEs can even incentivise early payments by offering discounts.

“In South Africa, 90% of SMEs are paid through EFT, and this is where automation programmes such as QuickBooks can play a vital role in invoicing. Invoices need to be proactive and include payment instructions as well as very clear payment terms,” says Victor.

Automated reminders are also an important tool and should include the payment terms, how to pay, when the payment is due and whether the customer’s payment is now overdue.