The South African government has stated that one of its aims is to broaden economic participation and has increasingly become a strategic business partner with small and medium enterprises with the purpose of encouraging the growth of small businesses. By doing so the government aims to catalyse overall national economic transformation and development, and to provide a predictable, competitive, equitable and socially responsible environment for investment, enterprise and trade for its economic citizens.
It follows that this will contribute to achieving government’s vision, through the Department of Trade and Industry of an adaptive and restructured economy, characterised by accelerated economic growth, employment creation and greater equity by 2014. This, in theory, is very noble of the government however the reality is quite the opposite. Government and parastatals need to make it easier for small enterprises to conduct business with them by ensuring that once business is done, once the goods and services have been provided and the small or medium enterprise sends an invoice to government, the invoice is promptly settled within the agreed time period.
Government has adopted a lackadaisical approach to settling invoices and to compound to this, it refuses or blatantly refuses to pay any late payment fines. This negative approach by the government and its parastatals has a domino effect. Unfortunately for the small business, unless the funds are paid timeously, payments cannot be made to suppliers along the procurement chain, employees are not paid on time, overheads such as electricity water and rates cannot be attended to. This, in turn, irks the suppliers who then either blacklist the small business, puts in place stricter trade conditions and often cuts credit lines. This can effectively strangle the small business in its infancy before it has an opportunity to grow.
Small and medium enterprises are key players in the economy, especially with reference to job creation; however, there seems to be a blind eye turned to this fact by government as small business may also suffer from high employee turn-over due to disgruntlement over unpaid salaries or late payment of salaries. Therefore, doing business with government may seem lucrative but may have a daunting effect for the small business. If government deals swiftly with the settlement of invoices it would significantly reduce challenges faced by small businesses to remain afloat and in so doing will stimulate the economy and increase job creation. Although it is not the duty of government to incubate a small business, it also has a duty to keep its end of the bargain when doing business with small and medium enterprises.
In terms of the Public Finance Management Act 1 of 1999 (the “PFMA”), the government seeks to promote and enforce good financial management in order to maximise service delivery through the effective and efficient use of the resources at its disposal. The PFMA, which came into effect from 1 April 2000, gives effect to sections 213 and 215 to 219 of The Constitution of the Republic of South Africa, Act 108 of 1996 for the national and provincial spheres of government. These sections require national legislation to establish a national treasury, to introduce uniform treasury norms and standards, to prescribe measures to ensure transparency and expenditure control in all spheres of government, and to set the operational procedures for borrowing, guarantees, procurement and oversight over the various national and provincial revenue funds.
The PFMA adopts an approach to financial management which focuses on output and responsibilities and the treasury regulations for departments, trading entities, constitutional institutions and public entities state that the accounting officer of an institution is enjoined to exercise all reasonable care to prevent and detect unauthorised, irregular, fruitless and wasteful expenditure and must implement effective, efficient and transparent processes of financial and risk management. By settling small business invoices promptly, the accounting officer effectively then avoids fruitless and wasteful expenditure in the form of late payment fines and interest on unpaid invoices.
In addition, section 38(1)(f) of the PFMA states that the accounting officer of a department must settle all contractual obligations and pay all money owing within the prescribed or agreed time. The prescribed or agreed time referred to in section 38(1)(f) is 30 days from receipt of invoice as provided for in terms of the treasury regulations which state that, “unless determined in a contract or other form of agreement, all payments due to government and parastatal creditors must be settled within 30 days from receipt of invoice”.
Hopefully government will implement more decisive and effective measures in ensuring that payments are made on time however until the government gets it house in order, small businesses will remain in a tricky relationship with the government who will either help to establish them or may single handedly suffocate them through its blatant disregard of the prescripts of the PFMA and its own economic policies.
Prepared by Lisa Jana
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