Cape Town - Large companies and government organisations are
taking longer to pay small and medium enterprises (SMEs), creating
significantly higher credit risks for small companies, Cape Business Times
quotes Coface operations director Jacqui Jooste as saying.
This is a trend both in South Africa and globally.
Cape Business Times says in an article that statistics
released by the National Treasury show that in March 2012, municipalities owed
their creditors R1.4bn more compared to the R9.7bn at the end of Q3 2011.
This report reflected that in the Free State 63% of debt
owed to creditors was older than 90 days, for Limpopo it was 56.3% older than
90 days, while the corresponding figure for the North West was 44.7%.
Due to their lower overheads, SMEs are generally more
competitive in their pricing. As a result, they are often considered in
preference to larger companies.
When an SME is approached by a large customer or by
government to quote or tender, it will do so at the best possible price.
However, what the SME often does not take into consideration is the cost of
credit, should the terms be extended, Jooste says.
If the customer contributes a large percentage to the SME's
turnover and delays payment or - even worse - defaults in payment entirely, it
could have a serious effect on the business.
While this is not only applicable to SMEs, smaller companies
are particularly vulnerable because they generally do not have the cash
reserves to fall back onto in the event of non-payment.
The effect on the SME's business is further aggravated
because management's focus is on collecting the money that is overdue, making
it easy to lose focus on the day-to-day business.
In tough economic times, sales and ultimately growth are top
priorities for businesses to cover overheads and make profits.
But it is important to ensure that sales and growth are not
chased at the expense of profit, says Jooste.
- Fin24
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