Call for action on late payments by the state

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JIMMY MOYAHA: When it comes to small businesses, receiving payments on time and having invoices processed on time is often the difference between small businesses surviving and growing, and whether or not they cease to exist. More than that, especially when these small businesses interact with organs of state and government institutions, they expect to be paid on time – and that often isn’t the case.

We’re going to be taking a look at this in more detail with the chief executive officer of the Small Business Institute, John Dludlu. He joins me on the line now to see what we make of this.

John, lovely having you on the show. Thanks so much for taking the time. I was surprised to learn that the directive in place for government organisations and municipalities alike to pay suppliers within 30 days has been in place for over 20 years.

JOHN DLUDLU: For over 20 years. Thank you for inviting us.

What is shocking to us, which is why we’ve decided to prioritise this issue as an institute to campaign around, is that:

Even though the organs of state are bound by that directive, they haven’t applied it and no one has gone to jail. No one has lost their jobs.

And we are quite disturbed and distressed by the fact that all it takes is you [the creditor] just need to report the fact that you haven’t paid, you haven’t honoured invoices that are more than 30 days or 60 days old or whatever – and then you are granted an exemption as a government official.

We think that is not sustainable and it shouldn’t be happening. It should be treated as a criminal offence.

But it would be unfair to say government is the only culprit here. The private sector is also a culprit.

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It is also unfair to say it is only big business that’s the culprit. Small businesses don’t pay each other on time [either], and they keep on whipping up excuses, such as ‘You did not read our payment terms. Our payment terms say you will be paid within 90 days, or after 90 days’.

It’s not fair. It shouldn’t be happening. Ninety days means you’re stealing from someone. You’re stealing from a small business owner. Here you are whittling down their ability to pay their suppliers, customers, and their employees. It shouldn’t be happening.

JIMMY MOYAHA: Now John, we’ll have another conversation perhaps at another time around the payment terms of businesses, because I imagine those are almost unique to every business and that might be a very difficult rabbit hole to dive down.

Let’s come back to something that you mentioned around the directive policy. You mentioned that it is an obligation for government organisations to adhere to this. When you say ‘obligation’, what do you mean by that?

JOHN DLUDLU: I mean it is government policy, therefore it cannot be ignored.

It has to be applied right from the minister to the director-general to the accounting officer and everyone else in the supply chain, in the financial management department, whether they are state-owned enterprises, government departments, organs of state, or municipal councils around the country.

The one thing that is a bit of a relief to us is that there is now a new change, a Public Service Commission [PSC] initiative, and I think the president may have signed it or is about to sign it into law.

That basically says the PSC should also monitor the payments situation by municipalities. Currently they are excluded. They are not covered by the monitoring arrangements by the National Treasury and the PSC. So I think this will give us a bit of relief.

We all know how bad the situation is among the municipalities. If you look at the Auditor-General’s report – a few are able to file an audit, the rest are not.

The other side [is that] 80% fail to file clean audits for themselves and their entities. And we know the situation about the collapse of public-service delivery. Obviously this also affects their ability to pay small businesses.

JIMMY MOYAHA: John, before I let you go, let’s take a look at what small businesses can do in this scenario. There are some remedies out there for small businesses when they are looking to have their outstanding invoices settled; but perhaps some of the small businesses don’t know what these remedies might be. Can you shed some light around what small businesses have within their arsenal to get outstanding invoices settled?

JOHN DLUDLU: Well, obviously you can go to court, but that’s not preferable.

Let me give you a real life example – me. I worked for an airline. I provided services to an airline for a year or two, and then in the third year they started raising queries about my invoice. I had provided all the information, all the evidence they needed that work had been done. Services had been rendered to them.

This is a state-owned airline, by the way. So when I ran out of options I needed to take them to court.

It did not please me to say a part of the action was to liquidate them so that I could get paid. But the upshot of all of this was that I did get paid, two days before we went to court – but 20% of my invoice was taken by the lawyers. That means that I worked almost for free.

It doesn’t have to be this way. I think it should be possible for government entities to create an ombud’s office within the supply chain, within the procurement environment, so that when there is a payment dispute you don’t need a lawyer. You just need to provide whatever is required without spending money on lawyers.

Lawyers must be a last resort. The good news is that there is now a move to appoint a small business ombudsman.

That process, as I referred to in my column, is stuck in parliament right now.

The MPs tried to interview people and identify the candidate, but politics came into play.

That process was abandoned and it’s about to be restarted – or at least we hope it will be restarted so that SME owners can have another avenue, a free avenue, to approach someone who can fight their [legal] costs.

JIMMY MOYAHA: The challenges being faced by small businesses in South Africa continue, and these challenges need to be met with appropriate responses if we hope to see these small businesses of our country succeed.

We’ll leave the conversation on that note. The chief executive of the Small Business Institute, John Dludlu, joined us to take a look at payment delays affecting small businesses and what could be done from a legislative perspective to alleviate this.