There is a fundamental saying in business that “cash flow is king” and that more businesses fail because of cash flow problems than for any other reason.
Cash flow is the difference between money coming into a business and money going out. It does not matter that a company may be expecting payments in the future, if there is not enough money available to pay bills here and now, the business can fail. Employees, suppliers, landlords and other people the business owes money to expect to be paid on time. If workers don’t get their pay at the end of the month this causes great hardship to whole families, and suppliers may not be willing to extend credit to enable the company to buy the goods and services needed to continue trading.
Most customers will wait for at least 30 days before they pay, so companies must have enough money available to keep the business running for at least a month. In addition to paying workers and suppliers, companies must also pay over the VAT to BURS on the goods and services they have supplied even if they haven’t been paid.
Unfortunately, there is a culture in Botswana of delaying payments, either through bureaucratic inefficiencies, or to help with the cash flow of the customers. Government and State-Owned Enterprises are the worst offenders, and it is normal for suppliers to wait for up to three months or more before they get paid. However, private sector companies, big and small, often delay payments – particularly to SMEs – either to help with their own cash flow, or deliberately to gain interest on the money which should have gone to pay suppliers.
Despite the efforts of CEDA, LEA and other agencies set up to help Small and Medium Enterprises, the sector does not seem to grow, and SMEs continue to fail at an alarming rate. There are obviously many reasons why SMEs struggle, but lack of cash flow is one of the most critical. Once a company gets behind on paying its bills, it is on a slippery road to potential collapse. Coupled with increasing difficulties in collecting money owed for goods and services already supplied, it is a double-edged sword hanging over SMEs every month as they struggle to make payroll and pay for such things essential to continuing trading such as electricity and telephones.
However, it is not only SMEs that suffer from this culture of non-payment. Literally hundreds of millions of Pula are owed to utilities such as BPC and WUC which threaten their financial viability even if, on paper, they may be profitable.
Attempts have been made by Government in particular, to ensure that it pays its bills on time, but these seem to have failed, not because Government doesn’t have the money, but because of bureaucratic inefficiency. The same applies to SOEs which do not seem to care that delays in paying their bills threatens not just the survival of their suppliers, but also the livelihoods of thousands of Batswana workers and their families.
It is time, therefore, that Government and SOEs changed this culture of delaying payments and commit to paying within 30 days, if not immediately upon receiving invoices. If the paperwork is correct – that goods and services are legitimate and have been received in accordance with orders and quality standards – there are no reasons to withhold or delay payments.
If this does not happen, then the future of the SME sector in Botswana is bleak; and Botswana’s economy will not grow.
This culture of non-payment is relatively new. Fifteen years ago, for example, BMC used to pay for cattle the same day they were slaughtered, now farmers can wait for over three months. Students used to get their allowances on time; now they struggle from one month to the next. Workers queue up at ATMs at month end to check whether they have been paid, and many leave empty-handed and are forced into the arms of “pay day lenders” to survive. This was not the case when workers queued up at the factory gates, or on construction sites on payday to receive their cash.
Cash flow may be king, but in Botswana it is in danger of being overthrown.