Small businesses are the lifeblood of South Africa’s economy, driving innovation, job creation, and economic growth. However, these businesses face numerous challenges, with late payments being a significant and persistent issue. Late payments cost small business owners valuable time and money, severely impacting their cash flow and hindering their growth. Despite their resilience and optimism, maintaining a healthy cash flow remains a critical barrier to their success.

According to Xero’s 2024 State of Small Business Report, 24% of small businesses experienced cash flow issues in the past year, with 72% of those affected resorting to personal funds to keep their operations afloat1. This persistent problem underscores the critical need for timely payments to ensure the financial health and stability of small businesses.

Colin Timmis, Country Manager at Xero South Africa, emphasises the importance of addressing this issue: “Late payments are more than just an inconvenience; they pose a threat to the financial sustainability of small businesses. Our research shows that nearly half of small business owners spend up to two months chasing overdue invoices. This not only affects their cash flow but also diverts valuable time and resources away from growth and innovation.”

The 2024 State of Small Business Report also states that while 87% of small businesses are optimistic about their future, the reality of late payments continues to dampen this optimism2. According to the report, 46% of respondents spend an average of 1-2 months chasing late payments, which hampers their ability to invest in new opportunities and technologies3.

Impact on Growth and Innovation

The impact of late payments extends beyond immediate financial strain. Small businesses are forced to delay critical investments in technology, skills development, and employee wellbeing. The report indicates that 56% of small businesses plan to invest in new technology, and 55% aim to upskill their staff. However, these plans are often put on hold due to cash flow constraints caused by late payments.

“Small businesses are the backbone of our economy, and their success is crucial for overall economic growth,” says Timmis. “By ensuring timely payments, we can unlock their potential to innovate, expand, and contribute more significantly to the economy. It’s essential for all stakeholders, including larger corporations and government entities, to prioritise prompt payments to support the SME sector.”

The Role of Technology in Mitigating Cash Flow Issues

Xero’s research highlights the role of technology in helping small businesses manage their finances more effectively. The adoption of cloud-based accounting solutions has been shown to improve financial management and reduce the time spent on manual processes. According to the report, 68% of small businesses using cloud technology reported better financial management.

“Technology can play a pivotal role in addressing cash flow challenges,” Timmis explains. “By leveraging digital tools, small businesses can automate invoicing, track payments in real-time, and streamline their financial operations. This not only improves efficiency but also provides greater visibility into their cash flow, enabling them to make more informed decisions.”

To truly uplift and support the SME community in South Africa, it’s crucial that businesses of all sizes play their part. This starts with something as simple as purchasing from small businesses and making sure payment is made timeously. By doing this, South Africa’s small business landscape can thrive, innovate, and grow.

“It’s going to take businesses of all shapes and sizes to make a real difference in addressing this challenge,” says Timmis. “It’s not just about supporting small businesses; it’s about ensuring the long-term health and resilience of our economy. By supporting timely payments, we can help small businesses overcome these challenges and flourish, while creating a more equitable and sustainable business landscape.”