Delays and non-payment by government of small, micro and medium enterprises

Date: 23 October 2020

The research (prepared for the Departments of Planning, Monitoring and Evaluation and Small Business Development) has shown that there is a problem of delayed and non-payment of invoices at both provincial and national levels of government. However, SMMEs doing business with provincial departments experience more delayed and non-payments than SMMEs doing business with national departments.

Delayed payments are encountered quite similarly in all provinces and across all business sectors. Delayed payments are also encountered similarly by all sizes of enterprises within the different business sectors. The location, size of enterprise and economic sector has little to do with delayed and/or non-payments, instead the problem lies with the government departments. SMMEs that have been in existence between 1-5 years are the most vulnerable to the effects of delayed and non-payments. Current policies should consider additional support for SMMEs that have been in operation for less than 5 years.

The impact of delayed payments on average turnover at a provincial level was found to be negative, meaning that for those SMMEs that are affected by delayed payments, their average turnover/revenue is likely to decline. Hence, the processing of invoices at provincial departments should be prioritised.

Given that the processing of payment is a system on its own, systems thinking should be employed. Each part of the system especially the administration and awareness raising should be scrutinized. Hence, steps need to be taken by government to address administration as the consequences to delays and non-payments are detrimental to the overall growth of the economy which has a direct impact on the country’s GDP.

The social impact of delayed and non-payments was found to be negative, encompassing a wide range of people from workers and their families to business owners and their families and to other SMMEs. The impact on SMMEs was also found to be negative and had the potential to foster fraud and corruption. Overall, the impact of delays on the socio-economic outlook of SMMEs is negative. SMMEs are deterred from tendering for government work because they expect to be paid late, resulting in limited competition.

In conclusion, noting that 56% of SMMEs, the majority of which are micro enterprises, were impacted by delayed payments there are negative compounding effects on the inequality index, unemployment rate and economic growth. These effects are too large to be ignored. Government should take effective measures to enforce the 30-day policy and ensure that there are repercussions even unto itself for the failure to pay within the agreed-upon time.

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