Protect businesses from late payments

Almost every Kenyan small and medium enterprise (SME) is now strung out on late payments. FILE PHOTO | NMG
Almost every Kenyan small and medium enterprise (SME) is now strung out on late payments. FILE PHOTO | NMG 

When is it a right to be paid on time? Only sometimes, under Kenyan law, in a patchy framework that is currently messing millions of lives and costing the country in a forever fat flow of business bankruptcies - despite all the talk of business enablement.

For in Kenya’s own ladder of payment rights, government comes first, and businesses come very last.

First, at the top of the pecking order, come the statutory payments due to the government and its agencies from businesses.

For businesses that pay National Hospital Insurance Fund (NHIF) contributions late, missing the payment deadline that falls on the 9th of every month doubles the amount due, straight off.

Miss the same deadline on National Social Security Fund (NSSF) payments and businesses must pay an extra five per cent on the sum due, while an overdue pay-as-you-earn (PAYE) payment incurs an instant penalty of Sh10, 000 and two per cent a month from there.

For employees, the position is also clear. Salary payments must be made on or before the due date, usually each month, or the employer is in breach of the law. But no rules exist applying penalties for late salary payments.

However, when it comes to businesses and the literally millions of SMEs settling all these statutory and salary payments, their rights to ‘on time’ payment or compensation appear to be null - in a seeming payment free for all.

The costs of this are severe. Speaking to one of our own bank managers between Christmas and New Year about our own particular misery on a key late payment, his input was the same as we’ve so often heard: almost every Kenyan small and medium enterprise (SME) is now strung out on late payments, with December 2017 the very worst yet for the abuse.

That said, for some companies, last year didn’t mark any deterioration at all in their payment periods - they have always paid very, very late.

Indeed, a momentary look at the scale of the trade payables due (overdue) from one or two of our very largest companies (or let’s say just one) makes a laughing stock of any pretence that they are promoting local business or entrepreneurs.

Of our very largest, one senior bank manager told me that one company alone, which typically takes anywhere from five to seven months to pay its business suppliers, was responsible for more business failures across his client base than any other cause in Kenya.

Quite simply, some of our largest companies are sitting on payments due for often half a year, earning extra income on the funds withheld - and cutting a swathe through the Kenyan corporate landscape with the business closures they trigger.

Yet for Kenya’s legislators and leadership, the forever crowds of business closures on late payments is no cause, yet, for legislation. It’s different elsewhere, where paying suppliers late incurs penalties that often run ahead of penalties for paying government agencies late - the cost of late business payments having been proven to be way more damaging economically (in lost jobs, closed doors, axed taxes etc).

Under EU law, for instance, as soon as a supplier payment is not made by the date stipulated in the contract, the late payer must pay an additional €40, currently around Sh5,000, to the supplier, as a late payment administration charge.

It’s a flat rate charge, regardless of the size of the bill. They also start paying interest on the overdue amount. My own company suffered badly this December from a particular late payment, from an organisation that in 2017 moved comprehensively into payment contract breach on supplier payments.

Calculating as at January 1st, the interest penalty that organisation would have been due to settle under EU rules, on just its one late payment to my own company for works undertaken in October and November and unconcernedly not paid throughout the remainder of 2017, would have been nigh on Sh20,000, on top of the Sh5,000 administration charge.

However, no such protection exists for we Kenyan businesses, in fact. And that leaves us prey. Indeed, my own current late payers aren’t even Kenyan, although both operate in Kenya. One is a primarily US-funded international organisation and the other is a British public limited company (plc).

So here we sit in Kenya, our staff working, delivering, services flowing out. But when it comes to payment, we can remain the chumps of the world, as so-called economic transformers don’t bother to pay, bill after bill after bill, leaving us all facing landlords, statutory payments, new year school fees, and bills of our own, without a right or a piece of legislation in sight to curb buyer impunity for non payment. Not OK. So, let’s hope we end 2018 with more rights than that.