Are you in the loan business to the SA Government?
Do you own a small business? Are you doing business with Government? If you are there is a 87% chance that you have not been paid in 30 days? This my dear small business owner, turns you into a bank. Hopefully you are charging interest to your customer and, considering that this customer has a reputation of not repaying companies, that interest should be relatively high. Consider further that you will soon be paying taxes on that outstanding invoice and your interest should increase even more.
If you are not then you are quite the philanthropist. You are, however, not alone. In South Africa there are thousands of small businesses in your position. Collectively you are the small business loan division to Government.
What pressure is government exerting on small business?
What makes this position that you are in even more interesting is that according to the law you must be paid within 30 days from when your invoice has been received. In essence this means that according to law your small business loan division should be illegal. Strictly speaking after 30 days of non-payment you are doing business with a criminal. “Why is this law there?” you ask. Well, believe it or not, it is there to protect you, the small business. To make sure that you do not run into cash flow problems.
Even though Government has been seeking to rectify the problem for quite a number of years it seems like your Small business loan division will be in the business of loaning to Government for the foreseeable future. This might have a slight impact on your business, as the chances are high that your company will be out of business in the near future.
What are the options? Well many small businesses have asked me if they should take legal action after 90 days. The reason small businesses are afraid to do this is that they might not have the money or that they might make enemies with their client (Government in this case). If you have gone to see your loan applicant (Government department) about their outstanding debt and they cannot help you within the promised time, then the chances are high that you are going to be loaning out your money for quite some time to come. My suggestion is always that if they have not paid you after 60 days there is a strong possibility that they will not pay you after 90 days and that you might never see your money.
A possible solution
Some have suggested a possible global solution to this problem. Have government provide a tax credit to those companies that have outstanding bills. This might be a simple method for government not to break the law and for small businesses to survive. Could this be something the Minister of Small Business Development should consider for small companies, (EME’s and QSE’s) by providing them a tax credit based on their proof of invoice and the Purchase Order?