Fi­nally, some­one in their cor­ner

Great idea to have an SME om­buds­man in cul­ture of late pay­ment

The Sunday Independent - - Dispatches -

THE MOVE by the DA to in­tro­duce a law lead­ing to the estab­lish­ment of a Small and Medium En­ter­prises Om­buds­man is a wel­come de­vel­op­ment, to be sup­ported by all of those com­mit­ted to the progress of this im­por­tant sec­tor.

An im­por­tant func­tion of the SME Om­buds­man will be to re­solve dis­putes around con­trac­tual agree­ments and late or non-pay­ment of amounts owed and payable within the 30-day pe­riod.

Glob­ally, the cul­ture of late pay­ment has been shown to have a detri­men­tal im­pact on small- and medium-sized busi­nesses. A 2017 re­port by Sage Pay re­vealed that its im­pact on SMEs amounted to R25 bil­lion glob­ally. It also found that, due to late pay­ments, 28% of the sur­veyed busi­nesses strug­gled to pay bonuses, 34% paid their sup­pli­ers late and 28% de­layed in­vest­ing in their own busi­nesses.

These im­ped­i­ments also dis­ad­van­taged SMEs when it came to en­joy­ing ben­e­fits such as early pay­ment dis­counts of­fered by sup­pli­ers. Most im­por­tantly, much-needed job cre­ation was un­der­mined when SMEs were forced to de­lay in­vest­ing in their own ex­pan­sion.

It es­ti­mated that SMEs gen­er­ate half the coun­try’s gross do­mes­tic prod­uct and nearly 60% of its em­ploy­ment – an im­por­tant con­tri­bu­tion in a coun­try with al­most 10 mil­lion cit­i­zens un­em­ployed. Erad­i­cat­ing the neg­a­tive trend of late pay­ment is there­fore the key to boost­ing this in­valu­able sec­tor.

How­ever, if var­i­ous re­ports are any­thing to go by, South Africa – es­pe­cially the pub­lic sec­tor – is ex­pe­ri­enc­ing an un­for­tu­nate sit­u­a­tion, in that breach­ing the 30-day pay­ment rule has be­come the norm rather than the ex­cep­tion.

Re­search pub­lished by Xero Ac­count­ing Ser­vices ear­lier this year showed that get­ting paid was the num­ber one fi­nan­cial chal­lenge for half of our small busi­nesses, re­sult­ing in both in­creased stress and re­duced pro­duc­tiv­ity.

The re­search also re­vealed that, on av­er­age, these busi­nesses spent 10.4 hours a month on debt re­cov­ery. This was a hugely in­ef­fi­cient al­lo­ca­tion of re­sources, wast­ing time that could be spent more ef­fec­tively in de­vel­op­ing growth strate­gies and de­liv­er­ing qual­ity cus­tomer ser­vice.

The re­search fur­ther showed that lim­ited cap­i­tal to mit­i­gate any short­fall which would re­sult in cash-flow is­sues, would at best sti­fle growth and at worst threaten the sur­vival of these busi­nesses.

This is a se­ri­ous in­dict­ment on the part of the government, in a coun­try where it is es­ti­mated that 60% of SMEs pro­vide goods and ser­vices to the pub­lic sec­tor.

It was re­vealed in Par­lia­ment ear­lier this year that more than 100 000 in­voices from SMEs, worth R7.7 bil­lion, re­mained un­paid by pub­lic in­sti­tu­tions, in­clud­ing government de­part­ments and state-owned en­ti­ties. The cul­prits in­cluded the Trans­port Depart­ment (Prasa, R1.12bn), Pub­lic Works (Prop­erty Man­age­ment and Trad­ing En­tity, R1.06bn), the Wa­ter and San­i­ta­tion Depart­ment (R968 mil­lion), Transnet (R788m) and Denel (R688m).

This is de­spite ex­ist­ing ad­min­is­tra­tive pro­vi­sions and pub­lic state­ments by government lead­ers ex­press­ing com­mit­ment to sup­port­ing SMEs as an im­por­tant con­trib­u­tor to job cre­ation.

For ex­am­ple, in his ca­pac­ity as a for­mer min­is­ter in the Pres­i­dency, Jeff Radebe con­tin­u­ally em­pha­sised the fact that the Na­tional De­vel­op­ment Plan, which aimed to cre­ate 11 mil­lion jobs by 2030, was linked to the growth and de­vel­op­ment of this sec­tor.

In his medium-term bud­get pol­icy state­ment last year, then­fi­nance min­is­ter Malusi Gi­gaba also high­lighted the im­por­tance of the government pay­ing in­voices to small sup­pli­ers within 30 days. He said government of­fi­cials who failed to meet the 30-day pay­ment rule would be charged with fi­nan­cial mis­con­duct.

“Large en­ter­prises and the government should make pay­ing sup­pli­ers and ser­vice providers on time a pri­or­ity, to help foster a jobcre­at­ing small busi­ness sec­tor.”

It can be seen that the pre­vail­ing sce­nario in the coun­try has made the estab­lish­ment of an SME Om­buds­man even more im­per­a­tive.

In do­ing so, South Africa could learn from the var­i­ous om­buds­man mod­els im­ple­mented in coun­tries such as Aus­tralia and the US states of In­di­ana and Penn­syl­va­nia, where the model of­fered a free and ac­ces­si­ble dis­pute res­o­lu­tion mech­a­nism be­tween state in­sti­tu­tions and SMEs, and SMEs and big cor­po­rates.

In these coun­tries and states, the om­buds­man plays a broader role, in­clud­ing un­der­tak­ing re­search into leg­is­la­tion, poli­cies af­fect­ing small- and medium-size busi­nesses, as well as pro­mot­ing best prac­tice in deal­ing with such busi­nesses. In or­der to ef­fec­tively dis­charge these re­spon­si­bil­i­ties, it is im­por­tant that the om­buds­man is in­de­pen­dent and has the power to both in­ves­ti­gate cases re­ported by af­fected par­ties and to ini­ti­ate his/her own in­ves­ti­ga­tions to re­dress sit­u­a­tions ad­versely af­fect­ing such busi­nesses.

While the om­buds­man must co-op­er­ate with the min­istry of small en­ter­prise de­vel­op­ment, in or­der to re­main in­de­pen­dent, he or she must re­port to Par­lia­ment. This will en­gage the min­is­ter in im­ple­ment­ing rec­om­men­da­tions from in­ves­ti­ga­tions.


Tholuk­wazi Sit­hole who among other things, de­signs horse sad­dles, at his shop at the Mai Mai mar­ket in the Jo­han­nes­burg CBD. An im­por­tant func­tion of the SME Om­buds­man will be to re­solve dis­putes around con­trac­tual agree­ments and late or non-pay­ment of amounts owed and payable within the 30-day pe­riod .

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