In November 2020, when the South African economy was devastated by the negative consequences caused by the COVID-19 pandemic, and under the leadership of several organisations, including Business for South Africa (B4SA), SA SME Fund and Business Leadership South Africa (BLSA) over 50 CEOs of well-established South African businesses took a bold step and pledged to commit paying their SME suppliers in less than 30 days.
The #Payin30 campaign has received a recognizable hashtag and was a sign of goodwill by larger corporates to support small and medium-sized businesses.
This article will examine why getting paid on time is important for businesses of all sizes and how the digitalisation of Accounts Receivable can eliminate this problem.
The good news is that modern technology allows for the seamless automation of invoice collection and accounts receivable management to help businesses get paid faster, improve customer relationships, and most importantly, give a competitive edge to businesses in the age of digitalization. Automation of manual and repetitive tasks is what it will take to outpace the competition.
SMEs are the backbone of the South African Economy
The South African economy is very dependent on micro, small, and medium-sized enterprises (MSME) that are a vital source of jobs, employing between 50% to 60% of the country’s workforce. Moreover, their contribution to GDP is around 34%.
However, given the current GDP per capita in South Africa, entrepreneurial activity is quite low when compared to other African countries. According to the IFC report “Unseen Sector,” entrepreneurial activity in South Africa should be three times higher.
The reason for that underperformance is a low number of newly established start-ups and a low rate of survival, due in part to working capital shortages.
Whilst the SA population is relatively well banked, with 69% of adults having had a bank account, small and medium-sized businesses lack adequate access to finance. Approximately 75% of MSME credit applications get rejected, due in part to bank bias toward longer-term financing goals, like fixed asset investments, rather than shorter-term working capital financing.
As a result, SMEs are heavily relying on internal liquidity and the need for stable cash flow.
The fragile state of South African SMEs was further complicated by the domino effect of the pandemic. The data suggest that 6.4% of SMEs went into bankruptcy in 2020 (up 50% from the year before), with 260,000 jobs lost and another 240,000 at risk.
Rob Formby, the CEO of Allan Gray, who also signed the pledge to pay businesses in less than 30 days recognizes that cash flow is key for small businesses and urges others to follow corporates to pay until the due date, which is a big thing for SMEs, but a “small thing” for large corporates. However, it is not as simple as it sounds.
How Long Does It Take for a Business to Get Paid?
Despite larger enterprises having better access to cash, it does not translate to a better payment discipline. There are various reasons for paying suppliers late, starting with different administrative issues related to Accounts Payable management, stretching to errors in invoices, or long authorization processes.
According to SEDA (Small Enterprise Development Agency), the majority of MSMEs (20%) say that their biggest problem when dealing with corporates is late payments, ahead of problems such as “red tape” or difficulties to compete.
The problem extends beyond the private sector. According to an IFC study, in FY2015/2016 a whopping 45% of the 457 SA governmental departments and public entities were unable to meet the 30-day payment rule, with 13% paying their bills more than 90 days late due to “poor financial management” and “cash flow problems”.
South African “Late Payment Culture”
According to a recent Xero research study, a colossal 91% of South African SMEs are having overdue invoices at any given time, with an average of R99,801 outstanding. Almost half (47%) listed late payments as a dampener on long-term growth, as business owners are preoccupied with AR management and chasing late invoices, taking away resources and time. On average, a business with 10 to 50 staff spends 90 hours per year just chasing late invoices.
Are late payments really that bad?
One might think that if a company is getting paid late it is not a big deal, as it will get paid eventually and sales are the real indicator of success. While that might be true for big corporations, it is still stalling growth and innovation for SMEs. The research shows that 29% of suppliers are not willing to share their innovations with late-paying customers.
For SMEs, the negative effect of late payments is even more devastating. A survey of South African SMEs indicates that almost a fifth struggled to pay for key business services and supplies. 17% of surveyed businesses went bankrupt as a result of late payments. What is more, 34% of SME owners admit that they have experienced alleviated levels of stress and familial issues (29%) as a result of the impact of late payments on their business.
Finally, tolerating late payments will translate into uncertainty about the future, long-term planning, and growth.
What Can Be Done?
#Payin30 is a non-binding pledge to commit to invoice deadlines. It is completely on the side of the customer (a large corporate in this case). However, sellers also have to be proactive to speed up their cash flow and reduce DSO.
Now, from a business perspective, how do you chase late payments?
-Do you constantly go through your books and check whether the invoice has been paid?
-How often and with what intervals do you check, and more importantly how often do you contact your customer?
-How do you record the performed actions, so that there is no confusion and you make sure you follow up?
The above questions can be overwhelming to answer, let alone execute. But thankfully, these monotonous tasks can be performed by technology. The team behind Kolleno have spent years working with SMEs helping them to get paid faster and have developed a cloud-based AR management and cash collection platform to help business thrive – not just survive.
The software is compatible with the most popular ERP and accounting software including QuickBooks and Xero. It has been designed to provide financial leaders with real-time data and visibility into their accounts receivables and financial health. Moreover, it helps to automate and reduce manual repetitive tasks, eliminate errors and empower teams to focus on what matters most – their clients and their business.
Kolleno’s commitment to the #Payin30 Campaign in South Africa
As part of Kolleno’s commitment to #Payin30, the company is currently offering a 3-month free trial to all companies that operate in South Africa for MSMEs and for larger enterprises. This is a unique opportunity to get ahead of the game and automate their accounts receivable.
Solving the problem of late payments together will translate to a better survival rate for MSMEs, change the late payments culture, and help enable a more prosperous future for South Africa.
Register for the Business Day Dialogues on the 6th of September 2022 to learn more.
For more information and a product demo please contact:
Sipha Ndawonde
Head of Africa Operations
E: sipha.ndawonde@kolleno.com
T: +27 73-179-4479
www.kolleno.com
Are you looking to centralize your payments, collections and reconciliation in one place? Book a demo to learn how Kolleno helps businesses to free up resources and focus on core priorities.
July 13, 2022 
