The Devastating Impact of Delayed Payments: A Looming Threat to SMEs In Kenya
KEY POINTS
The cumulative impact of delayed payments on SMEs can have far-reaching consequences for the overall economy. A weakened SME sector results in reduced job creation, diminished tax revenues, and slower economic growth, posing a threat to sustainable development and poverty alleviation efforts.
KEY TAKEAWAYS
Many SMEs operate on thin profit margins and rely on timely payments to meet their financial obligations. Delayed payments disrupt their delicate cash flow balance, leading to a vicious cycle where they struggle to catch up on payments and fulfill their commitments.
Delayed payments are a nuisance that most SMEs and Content creators are going through every day and this represents a critical and negative challenge to SMEs in Africa, particularly in Kenya.
The essence of time and the value of work done is fulfilled in the moment of payment. If you work and you bill, the amount you have invoiced represents the value of the work done and the time from the work done to the payment period. This time frame gives the money the right value that enables the payee to cater to their needs. Any delay and the money loses its value and purpose, and the payee makes a loss. This is something that few truly understand, showcasing why the law on delayed payments is still in the 16th Century.
Delayed payments have emerged as a significant challenge for small and medium-sized enterprises (SMEs) in Kenya, posing a severe threat to their survival and growth.
From my own experience, it is an issue that does not receive any significant coverage or attention and the majority of those affected, especially content creators, influencers, and suppliers have no way to have the matter addressed other than just wait it out and in the article, I will categorically elucidate why delayed payments are the worst possible factor that cripples SMEs in Kenya, through exploring the intricate details of this issue and its far-reaching consequences.
I believe I am not the only one suffering from this matter and hence the reason behind this is to try and create a conversation that can be positive and push the matters to those who can address it.
Related Content: Kenyan SMEs Urgently Need Kenyan Solutions
Imagine entering a store, selecting the items you desire, and when the time arrives to settle the bill, nonchalantly stating, “Thanks, but I’ll pay for these later,” before casually walking out with your chosen products. Such behavior would be unthinkable. However, why is it considered acceptable when it comes to paying small businesses that supply goods or services?
Surprisingly, this conduct seems to be tolerated, as our research reveals that over one in ten invoices issued to small and medium-sized businesses worldwide are settled OUTSIDE the agreed-upon payment terms. This amounts to an astonishing trillion dollars annually, encompassing payments that are either delayed or, worse yet, never made at all. In some instances, payments are so severely overdue that small and medium-sized businesses are compelled to write them off as uncollectible debts.
A significant part of the issue lies in the fact that many businesses fail to comprehend the repercussions of not paying their suppliers on time. Nevertheless, for small companies lacking the financial flexibility to absorb such costs, the aftermath can be catastrophic. Cashflow serves as the lifeblood of any business. Disturbingly, 40% of the small and medium-sized enterprises we surveyed reported experiencing direct and detrimental consequences from late payments. These consequences range from impeding future investments to reducing staff wages or even preventing the disbursement of Christmas bonuses. READ MORE ON THIS REPORT BY; SAGE; https://www.sage.com/en-gb/blog/wp-content/uploads/sites/10/2017/12/Domino-Effect-Late-Payments-Research-Sage.pdf
Money is the bloodline of any economy, and for businesses to thrive, its steady flow and circulation are critical. Increasing cases of delayed payments by both National and County governments and big brands to numerous businesses countrywide are alarming. Delayed payments impede the effective circulation of money in the local economy, adding excessive strain to businesses that are already balking under other local and global market factors. Here are my top reasons as to what this leads to;
Cash Flow Disruption:
Delayed payments disrupt the cash flow of SMEs, leaving them struggling to cover operational expenses, pay employees, and invest in growth opportunities. This creates a cycle of financial strain, hindering their ability to sustain day-to-day operations. If not addressed, leads to the death of the business and adds to the negative statistics of the ever-increasing unemployment rates.
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Working Capital Constraints:
SMEs heavily rely on a steady cash flow to manage their working capital needs. When payments are delayed, they are unable to purchase raw materials, maintain inventory, or fulfill customer orders, leading to operational