In Sierra Leone, Late Payments Lay Waste To SMBs

Sierra Leone is showing the impact of late payments, where a significant number of smaller firms have been forced to shutter operations. In the U.K., the head of an insolvency and restructuring firm says late payments are a drug for larger companies.

In Sierra Leone, late payments are laying waste to small businesses (SMBs). As reported in the Sierra Leone Times, the widespread use of late payments as “credit” for larger companies at the expense of smaller ones has been an “assassin” of those smaller firms. That’s according to Bernard Swanepoel, executive director of the Small Business Institute (SBI).

The executive noted that the SBI has estimated that as much as 60 percent of late payments are being written off as bad debt by these smaller firms, and that it takes as long as 101 days after the 30-day payment terms have been reached for payments to be received. (Separately, the Department of Trade and Industry has estimated that about 70 percent of SMBs fail within the first 2.5 years of operation.)

The SBI sent letters to several of the largest companies in the country, inquiring as to payment terms completed within the 30-day time frame. Only one firm in 10 said it makes that type of information public, while a further 25 percent of that tally paid suppliers within terms.

“A handful said they pay [SMBs] within seven to 15 days,” said the site.

Swanepoel explained, “Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses. One of the surest ways to disrupt it is to delay paying them for their services. We hear stories every day of [SMBs] having to close their doors because neither big business nor government pay invoices on time; sometimes they do not get paid at all.”

Separately, in the U.K., Countingup, a small business banking and accounting app, said it had inked a pact with FinTech and insurance solutions firm Hokodo, eyeing SMB risk tied to late payments and unpaid invoices. Under the terms of the pact, firms using Hokodo’s Invoice Protection tool can get a quote to “cover” their most critical invoices, with fees charged to purchase and pay for such insurance, spanning 25 basis points to 1.25 percent of the invoices.

Also in the U.K., Food Manufacture reported that suppliers are being hit by late payments after the Competition and Markets Authority rejected the Sainsbury’sAsda merger.

The continued epidemic of late payments in the U.K. has been illustrated by the statements of Duncan Swift, president of R3, the trade association that serves restructuring professionals. Swift said larger firms are relying on late payments in a way he likened to being addicted to crack cocaine.

“It’s a selfish motivation because, if everybody was doing, it [could become] widespread. And I would say, in certain industries, it is an endemic problem that causes structural problems throughout the sector, where you can end up with situations where otherwise healthy businesses that are good businesses keel over, because they are starved of cash,” he told Accountancy Age.

Swift said it remained important for “governments and other policy makers to actually understand that late [payments,] for those that are the late payers, can be quite a bit of a drug. I would go so far as to describe it as the crack cocaine for larger companies.”

The site noted that 34 percent of the companies that were insolvent had bad debts greater than 57 days. Swift said that’s “because late payment is the underpinning of that adage ‘cash is king,’ and most insolvency events in the U.K. are caused by lack of cash, not by lack of profit.”