Concerns that the coronavirus lockdown has opened the door for large corporates to avoid paying smaller suppliers for their services has prompted the Cape Chamber of Commerce and Industry to launch a survey among its members probing allegations of non-payment. 

The Chamber says it is conducting the survey following a spike in complaints of non-payment from small and medium enterprises (SMEs), who say that they are struggling to make ends meet as a result of not being paid by their corporate clients. They fear that a lack of cash flow could spark a wave of closures and job losses, exacerbating the impact of the coronavirus where they are already hard hit. 

Non-payment is not a new struggle faced by SMEs. 

Fin24 previously reported that late payments have been called the “assassin of small businesses” and that over 90% of small businesses are impacted by late payments.

A survey by the Small Business Institute (SBI) in 2019 suggested that as many as 40% of late payments were being written off as bad debt by SMEs and they received payments, on average, were made 101 days after the 30-day target.

But Waheed Adam, president of the Cape Town chapter of the international peer-to-peer network Entrepreneurs Organisation (EO), tells Fin24 that since the coronavirus outbreak, a worse pattern of non-payment has been observed across a range of sectors. 

While for many cash-strapped businesses – large and small – that are battling the impact of lockdown, payment difficulties are genuine, Adam is concerned that some unscrupulous business owners may be taking advantage of the pandemic to evade financial obligations. 

Adam said within the EO network, members have access to various support groups where they can share their experiences, queries and concerns. According to Adam, members have complained of large corporates ranging from retailers, car manufacturers, financial institutions and banks to security firms, health clubs and fast food chains “attempting to evade or defer payment due to the impact of Covid-19”. 

“In some instances members have shared evidence, but understandably, members are reluctant to go public for fear of corporate victimisation,” he said. 

Adam claims that in some instances, the culprits’ published financial statements show that large profits are being made, but in contrast, delayed or deferred payments will prove catastrophic to SMEs.

It impacts the ability of the SMEs to pay salaries, wages and cover operational expenses, he explains.

Blue Chip companies

“We are referring to Blue Chip companies who regularly reveal their financial results publicly. And not those who have come forward like, Edcon for example, or SAA who we all know are in financial trouble. Most of the invoices that are not being paid relate to historical debt for services and/or products rendered prior to Covid-19 and the lockdown with clear contractual obligations. Some of course, would be accounts for rent which are current contractual obligations,” adds Adam. 

“The corporate usually pays the supplier or vendor 30 days after invoice, with some cases extending as much as 120 days. That means that the product or service had already been rendered at least 30 to 60 days prior to payment resulting in the SME already having to carry the financial burden of those goods or services from when it was first delivered.”

If the account isn’t settled on time, the knock-on effect is financially crippling in an environment where margins are already strained due to fierce competition. And for those that depend on overdraft facilities or invoice factoring the potential of layoffs in order to service debts is highly likely, he says. 

“Some corporations have suggested payments may resume after lockdown – at this point who knows when that will be. And how do our member companies pay their bills in the meantime without fatalities?”

“Our aim is to appeal to the corporates that have the cash reserves to pay for services already rendered by their SME suppliers. Now is not a time for shareholder value, but a time to prop up everyone around you. In future you will need their support again,” says Adam.

“We know that studies show that entrepreneurs have been the biggest creators of employment, while corporates are shedding jobs. SA’s economy needs entrepreneurs and we feel these large corporations are not acting responsibly.

“The runway of survival is far shorter for these SMEs, who do not have the cash and reserves large corporates have. For me this is unwarranted and the knock-on effect will be very big, because the SME sector is among the largest employers in South Africa.”

Peter Attard Montalto, head of capital markets research at Intellidex, says a key problem is the lack of flexibility in the SA economy to allow SMMEs to bounce back. The longer the lockdown, the less likely it is that weak SMMEs will survive. 

Struggling suppliers

Comments among entrepreneurs, who prefer to remain anonymous to avoid victimisation, give an idea of the situation they are facing.

While some applaud corporate clients have “gone out of their way to assist” during this time, others say they have been “bullied”. 

“We only deal with corporate clients and their agencies. One of SA’s leading liquor companies is among those refusing to pay,” says an entrepreneur in the advertising industry.

The owner of a bakery which supplies top speciality coffee retailers with baked goods, is only getting paid 60% of the bill for goods already supplied in February.

An entrepreneur in the property industry says large corporate retailers, including a well-known home and office furniture company and giant fashion retailer, are among the corporates refusing to pay rent. 

“We are trying to help the smaller business tenants but are unable to do so if big corporates, who can afford to pay, choose not to,” says this entrepreneur.

A letter received by another entrepreneur in the property industry, from a large fashion retailer, claims that it is simply not liable for rent due to “the government declared national lockdown period”.

The entrepreneur believes SMEs are being “bullied”. 

“Who is supposed to pay for security, electricity, storage of their goods and more?” asks the entrepreneur.

Small business owners have expressed concerns over the impacts of non-payment, which include closures and job losses. 

An entrepreneur in the immigration and destination services business says human resources departments and airline companies “are simply refusing to pay invoices or respond to demands”.

“Some of the companies we supply to – including large retail and supermarket chains – have asked us for payment terms, others are just refusing to pay historical debt because of Covid-19,” says another entrepreneur. 

“Some are demanding we fetch our products with no payment. So far we’ve retrenched 50 people, with a possibility of another 300 more across the country.”

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