Source: Payment delays trickery by big corporates – The Standard August 20, 2017
Recently, we have observed that a client we have collected and disposed aluminum industrial waste for, is now using another waste disposal company. We have had a healthy and mutually beneficial relationship with this company for many years until recently, when we could not pick up their waste due to arrears from three months ago and beyond. They are owing us a few thousand bonds and are not the only corporates owing us. Due to delays in payments, we have initiated a pilot programme where the fuel of our trucks is paid directly from the received proceeds of the work done for that client. What this means to us is, if the money is not in our bank account, any transaction we do with any of our clients is not a sale, but a gift.
the sunday maverick with GLORAI NDORO-MKOMBACHOTO
If a client calls requesting services and their outstandings are 60 days and more, we are obviously unable to fund the service they are requesting. While it makes sense to us, it has been a bitter pill to swallow but as a struggling small business, we have had to make this strategic decision so that we do not continue to finance the operations of other businesses, which businesses are often much bigger than us. We are unhappy about losing long-term valued clients, but we have had to choose self-preservation over bankruptcy due to defaulting debtors.
Corporate business sustains our operations because it is business that is guaranteed and lucrative. Our other source of revenue is having our trucks stand at street corners waiting for random, usually domestic clients request our services. It is uncertain and this sector is overtraded. We are gravitating more and more towards randomness because we like many other enterprises of our size, cannot afford to have debtors not pay us immediately for services rendered.
Many small and medium sized businesses (SMEs) in Zimbabwe are struggling to survive. The primary reason is delayed payments of up to as long as 180 days by big corporates. It seems most entities are using this practice, but when you are a small business and a sub-contractor of big corporates where payment delays get to 180 days and beyond, you are at risk of going bust. Cashflow is the lifeblood of every going concern, but when you get bogged down in tracing your payment within the bureaucracy of the accounts departments of your clients, you are in jeopardy!
The credit controller, finance manager and even the finance clerk have become all too powerful within the payment systems of the big corporates they work for. “The finance manager signed all the papers, but the finance director has not authorised the payment”, or “we are paying you on Friday,” or the “finance director is out of town, so there is no one to sign the RTGSes”, or “give me your name and number and I will call you back”, which they never do, is what you hear as excuses too often.
If you are an SME and from Monday to Friday, 60 to 80% of your time is spent trying to establish (within the spider web of many corporates’ payment systems) who is going to pay you and when they are going to pay, you are not alone. The trickery being used to delay payments to SMEs is now pervasive and widespread.
If you are a small entity and every time you supply products and services to big businesses and the turnaround time for payment is more than four months, it is surprising your business is still standing. If you are a micro, small or medium sized enterprise (MSME), and when first securing business from a big corporate they did not ask you for a tax clearance certificate, but after delaying your payment for four months they do, chances are, the under-link of that organisation is either indirectly soliciting for a bribe, or they are deliberately delaying payment to you and other creditors in order to fund their cashflows cheaply.
There are more businesses choosing to comply with the authorities than beat the system. For many law-abiding businesses, it is strenuous to conduct business under the radar where there are numerous risks and the terrain unpredictable. Businesses worth their salt and that fall within the tax-paying thresholds often choose to pay taxes, willingly, but submission of a valid tax clearance certificate only when payment is due is being used by many corporates to delay payments to small businesses.
In any business, regardless of size, cash is king. Without cash you cannot function. Without cash, you are disabled. Without cash, you have no permission to be in business.
Without cash inflows, you are as good as dead. Many profitable enterprises that ran out of cash failed. In current Zimbabwe, when big businesses delay payments to MSMEs by more than a month, business failure is imminent. Deliberately delaying payments to small businesses means big businesses are using the funds withheld as a cheap source of financing. When one entity has supplied another with a product or service, the money due to the supplier is no longer the buyers’. When the buyer withholds payment for an unreasonable period of time, meanwhile spinning that money for additional revenue streams, they are essentially maiming the supplier and leaving them for dead. It is a bad business practice.
It is ruthless, it is chicanery and it smacks of compromised business ethics.
MSMEs are ordinarily fragmented, disorganised, individualistic and flat-structured in their operating business model. Ordinarily, when business is thriving, they enjoy the spoils of good returns, often with no regard to investing collectively to sector growth in associations. When the operating environment becomes challenging, the tendency is to suffer in silence, burdened by the abuse of those deploying anti competitive behaviour. Small firms also tend to have a weak propensity for collaboration for a common good due to their inability or lack of interest to mobilise, lobby and speak with one voice. As a result, they remain fragmented, creating a rock bed for the organised, often big businesses, to take advantage of them. Therefore, it is vital that the responsible authorities step in to create a level playing field where the sustainability of the different sector clusters is maintained at the benefit of all entities.
With our banking system operating on a “nil growth, hold and maintain” basis, relatively fairly priced banking products such as short to medium term loans and fluctuating-in-need business overdraft facilities are now virtually history to SMEs, who have always been perceived by the banking sector as high risk. The absence of any SME divisions within banks in Zimbabwe is very telling. SMEs need these well priced banking facilities and in a market where there is none, there is little room to manouvre. Without access to reasonably-priced financial products, being in business for many in Zimbabwe is a daily grind. Even if one taps into the micro-credit products on the market in order to bridge the unwarranted financing gaps created by delayed payments, this strategy is risky because one never knows when they will be paid. Friends and family with resources to lend short-term loans are charging exorbitant interest rates as well and consequently, MSMEs are increasingly finding themselves between a rock and a hard place. If you snooze, you will eventually find yourself in a bottomless pit of debt that can quickly escalate to business failure.
Granted, all businesses, despite their size and sector, are operating under trying and impossible market conditions. In order to survive, entities, at individual and sector level are rolling out coping strategies, choosing to adapt than die. But in the long term, if part of the survival strategy of large entities means thwarting and crowding out the operations of the small entities, at some point in time, the viability of all businesses will be compromised and at risk.
Sustainability in a unique market environment such as ours lies increasingly in both tangible (fiscal and monetary) policies and intangible values such as, ethics, knowledge, relationships, innovation and razor sharp focus — values, among many others, that outside rivals cannot match if they are unfamiliar with our local terrain. These values tend to be located in the back office, inside the underbelly of the corporates. There shall come a time, when there will be a correction in the marketplace coupled with renewed competition from rivals abroad and overseas and it is these values that will carry the currently abiding companies through.
Right now, the war room of our economy lies within the MSME business sector of our economy. MSMEs cannot reinvest in their entities, scale, nor create employment if they are constantly being starved of the revenues they have earned. The shortage and widespread unavailability of cash in our economy is bad enough. Earned but withheld cash inflows are the final nail on the coffin for the already struggling MSMEs. That is why business associations ought to take the bull by the horns and convene stakeholder consultations and sector dialogues in order to influence attitudes and change behaviours.
The time has come for government, specifically the Ministry of Industry, Trade and Commerce, in collaboration with the Ministry of SMEs, the private sector and willing donor agencies, to set up an office for the small business ombudsman tasked among other things with the responsibility of:
- Naming and shaming those businesses involved in unfair trading practices.
- Setting up an online watchdog, the Business National Transparency Register Website.
- Pushing government to come up with laws that ensure that small businesses are paid within a minimum period of 15 days and a maximum period of 30 days. Thereafter, a predetermined interest rate is levied.
- Determining the penalties for those companies breaking these laws.
- Enforcement of the laws by collecting the penalties from the errant companies.
- Forcing the top 100 companies in Zimbabwe to report on Days Payable Outstanding (DPO), the terms of those payments and variance analysis on their payment performance.
- Mediating on general business-to-business disputes.
Gloria Ndoro-Mkombachoto is an entrepreneur and a regional enterprise development consultant. Her experience spans a period of over 25 years. She can be contacted at firstname.lastname@example.org