The issue of late payments to small, medium, and micro enterprises (SMMEs) in South Africa has become a pressing concern, with many businesses being forced into involuntary lending. When suppliers deliver goods or services with agreed-upon payment terms of 30, 60, or 90 days, they are essentially extending credit to their customers. This can lead to a significant strain on the supplier's cash flow, as they must cover the costs of labour, stock, tax, and operations while waiting for payment.
According to Jordan Gosling, Vice President of Lulapay, suppliers often have limited freedom to negotiate payment terms, particularly when dealing with large customers. Many SMMEs accept lengthy payment terms because rejecting them could result in the loss of a contract or jeopardize future work. Gosling argues that this can create a funding gap for suppliers, making it challenging for them to maintain a stable cash flow.
The South African government is considering stronger protections against late payment, but Gosling warns that legislative solutions alone may not be sufficient. He believes that any regulatory rule needs to be supported by visibility, consequences, and a practical, enforceable route for suppliers to uphold their rights without damaging commercial relationships. Simply introducing statutory payment terms and mandatory interest may not address the root causes of slow payment.
Gosling notes that when companies approach Lulapay for funding due to slow payment from customers, it is often a sign of a healthy business with strong relationships and a steady stream of orders. However, the cash needed to keep trading while invoices clear is frequently missing. Access to funding at this point can be a lifeline for SMMEs, enabling them to continue operating without interruption.
The regulatory debate surrounding late payments aims to address the problem, but Gosling argues that it may be overly reliant on a blunt instrument. He believes that statutory payment terms and mandatory interest may compel faster payment in some cases, but they do little to help suppliers who need immediate access to cash. Gosling emphasizes that regulation cannot change the fact that businesses need cash on the day the bill lands, not when a tribunal decides it was owed.
Introducing rigid statutory terms could burden the market with compliance costs without addressing the underlying causes of slow payment, according to Gosling. He warns that this could worsen the problem, particularly if reform removes flexibility and fails to account for fluctuating cash flow in real businesses. However, well-designed oversight could help shift the market away from distress lending and towards long-term, growth-oriented funding.
Ultimately, Gosling believes that effective regulation could lower structural default risk and enable accredited lenders to offer fairer, more transparent, and lower-cost working capital to SMMEs. This, in turn, could help alleviate the strain caused by late payments and support the growth and sustainability of small businesses in South Africa. By addressing the root causes of slow payment and providing more flexible funding options, the government and industry stakeholders can work together to create a more equitable and supportive business environment.
Key points
- Extended payment terms are effectively turning suppliers into involuntary lenders, with many SMMEs struggling to manage cash flow while waiting for payment.
- Legislative solutions alone may not be sufficient to address the issue of late payments, and a more nuanced approach may be needed to support SMMEs.
- Well-designed oversight and regulation could help shift the market away from distress lending and towards long-term, growth-oriented funding, lowering structural default risk and enabling accredited lenders to offer fairer, more transparent, and lower-cost working capital.
