Late payments have a way of messing up societies and economies that goes far beyond the casualties in small businesses floundering and individuals made redundant. To whit, our week has seen the closure of a rank of government websites on non-payments to Microsoft for the cloud platform they are on.
Included in that closure is the Kenya Revenue Authority’s iTax, in the very week when companies pay the PAYE income tax due on their October salary pay outs.
It is one case where the non-payment will hit the non-payer in revenues disrupted. But so very often it doesn’t, and there is really scant incentive to pay promptly beyond the threat of future non-delivery by suppliers.
It was thus we saw Nakumatt cruise for years beyond its cashflow crunch, by effectively borrowing goods to sell on its shelves from suppliers throughout our nation.
The impact of that extra unpaid and unpaying time has been profound for our manufacturing sector. Take only a single look at the annual accounts for Mumias, and even as its sales revenue slumped, its outstanding invoices stayed stuck, now worth more than seven months’ worth of its sales for last year.
Yet this plague is only set to get worse, as our government finances strain, and our private sector keeps functioning on sales not paid for. And the effects play out everywhere.
Take medical supplies, which were anyway apt to go missing in our creaky and poorly administered public supply chain. As suppliers now stare at growing tails of unpaid bills, many will finally take the step of simply not sending another batch into the ‘giveaway-for-free-and-hope-one-day-it-might-all-get-paid-for’ pot.
For some, withholding the next delivery will not even be a choice, as their businesses finally close, their own unpaid borrowing from their own creditors finally exhausted.
And thus, oxygen cannisters stop arriving, or dressings, antibiotics, or test kits: all of them killing another Kenyan here, and another Kenyan there on the undiagnosed, the untreated, and the uncure - even as we pile into pilots for universal free healthcare.
Yet, beneath our deepening liquidity problems, and with ever more of our economy running on unpaid empty, lies a fundamental skew in ideas about what is a ‘right’ and what is not.
For, in Kenya, almost every organisation buying goods and services appears to believe it has a ‘right’ to credit. But such ‘rights’, as it happens, are not generally considered as ‘rights’ globally.
They figure nowhere on any rights charter, are not supported by any international organisation, and would simply get laughed out of town in economies that are built to be more robust.
In the UK, for instance, businesses get credit rated. If they want suppliers to extend them a credit period, the state of their finance is measured, as is their payment track record. They get credit based on how much ‘risk’ they represent to any supplier.
Often suppliers even insure their risk in supplying credit to their customers, and that insurance rests on the customers’ credit rating – and it being high enough to represent a viable risk for insurers.
Yet, the relative lack of depth and breadth in our financial services infrastructure preclude that as a way forward in Kenya.
Instead, we have seen our airlines, our utilities, our phone companies, and many others simply abandon ‘post-paid’ and switch to pure pay-as-you-go.
But that leaves the rest of us in business needing to review our own approach to lending too.
Sales we make that never get paid for, or take months to be settled, still requires resources, and few of us at the bottom of the economic pyramid can starve our own suppliers for six months to two years and still expect deliveries. Indeed, some segments of our economy have long since moved to pre-paid for survival: few organisations get credit on hotel venue bookings, or event supplies.
Yet for the rest of us, it’s a reality that our payment environment is deteriorating, not improving, and simply a choice, contract by contract, delivery by delivery – do we step out onto the shooting range and ultimately get shot. Or do we say ‘no credit’ and stay alive, albeit smaller?
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
