CREDIT MANAGEMENT
Are SME ’ s Suffering From Rise In Late Payment ?
By Wasilwa Miriongi
The scourge of late payment is affecting SME ’ s and Selfemployed workers and Freelancers across Kenya . Since invoices or bills vary in nature it is difficult to estimate the average amount owed to each SME , self-employed freelancers .
In Kenya most unpaid bills emanate from government agencies such as the central government and the county governments that account for most of the pending bills occasioning what ’ s now labelled the pending bills crisis .
To a business entity , delay in payment means business is denied the most important asset which is cash . With cash being the bloodline of any business , late and badly managed payments can quickly cause serious cash flow problems . When cash flow gets obstructed , businesses are sometimes forced to do drastic things to keep things moving smoothly . For some businesses , this even means that taking a salary cut may become necessary at worst even closing down .
On the other hand the backlog of unpaid claims has been blamed for cash-flow issues at the suppliers ’ businesses , with some being driven out of operation . This has also had a negative knock-on effect on the economy . This should justify the credit management saying that “ Revenue is vanity , profit is sanity and cash flow is reality ”
The negative impact : Not getting invoices paid on their due dates can have a huge negative impact on SMEs . Whilst the mainstream media focuses on the cost of living crisis , the self-employed are being hit hard with delayed payments . Unpaid invoices are crippling the finances of many self-employed workers , as much as 1 in 5 . The late payment crisis is so bad for some that they have little or no money at all to cover basic living expenses .
Unpaid invoices causing mental health decline : Late payment is causing mental health issues for many self-employed people and small business owners , details from the task force set by the government of Kenya in July 2020 that sought to declare mental illness a national emergency show . Since the onset of the Covid-19 pandemic , the mental health crisis has worsened largely due to coinciding socio-economic determinants . Unemployment has emerged as the lead cause of anti-social personality disorders among men aged 19-29 , who also exhibit increased rates of substance abuse .
A general failure to combat the problem : The problem of non-payment of invoices has always been a challenge for the Self Employed and Small Businesses . The central government has always been saying that pending bills in most counties are historical . Pending bills ineligible for payment are a cause for concern since they are a sign of imprudent financial management . Given that elections are here with us and incoming governors are reluctant to settle bills of their predecessors . The outstanding claims continue to skyrocket even after Presidential directive issued more than a year ago to the national government to quickly settle them .
Late payment crisis solutions : Whilst many Self-employed contractors have not been paid on time , many have turned to litigation and Debt Collection agencies for help . This ensures they are getting paid and whilst there may be costs to them , this is viewed by most as an essential strategy to ensure they get paid . The results have been a mix of success and failure in recovering the amounts . It ’ s time debt Collection for freelancers now has a more important role to play on the government front .
Treasury cabinet secretary noted it ’ s important that Parliament , National Treasury and the Office of the Controller of Budget puts in place control measures to ensure that procurement processes are adhered to and that county governments pay their pending bills on time . There have been pronouncements that county finance chiefs should face sanctions for failure to clear bills owed to suppliers and contractors within the stipulated time .
Further the Treasury cabinet secretary issued a circular to the Attorney General , all Cabinet Secretaries , and Accounting Officers ( Principal Secretaries ) directing them to give priority to pending bills especially State Corporations and Semi-Autonomous Agencies ( SAGAS ). The National Treasury says the government is also considering a legal framework that will make county accounting officers liable and punishable for failure to honor bills as a first charge , verified bills for goods supplied or services rendered to the devolved units . As we go for elections the government has also stepped in via Commission for Revenue Allocation ( CRA ) that wants counties to settle unpaid dues to avoid 2022 transition problems . While some countries have late payment penalties enshrined in an act that protects businesses , it ’ s high time we introduced such an act here as it makes sense to assert late payment penalties that may be applied in event of payment delays though they may be waived if a dispute is proven to exist . This will demonstrate low tolerance for late payment . On the government front it is time the ministry of trade and Treasury establish a “ Delayed Payment Portal : for empowering micro and small entrepreneurs across the country to directly register their cases relating to delayed payments caused by governments and government agencies .
Wasilwa Miriongi is a Certified Credit Professional currently working as the Managing Director , Del Creder Credit Management Limited . You can engage him on this or related matters via email at : WMiriongi @ gmail . com .
86 MAL49 / 22 ISSUE