Pay suppliers promptly if you want Kenya’s economy to grow

It is Christmas and tills will be ringing non-stop. Indeed, what used to be a season for prayers, soul searching, and quiet reflection is now mainly characterised by weeks of binge-shopping and devoid of spiritual meaning.

As one commentator puts it, mass consumerism has robbed Christmas of its soul and authenticity.

Cash will be flowing into the coffers of supermarkets in a big way.

Yet even as supermarkets make a killing from the Christmas season, one group that remains disgruntled is that of the main suppliers of these big stores.

In terms of timely payment to suppliers, the big supermarkets in this country are among the worst performers. I have heard of cases where a supermarket has been forcing suppliers to accept 120-day credit periods, way beyond the typical 30 days.

And this despite the fact that customers pay cash when they buy goods from supermarkets.

As a manufacturer, you must accept the terms of the big stores. Suppliers are at the mercy of a take-it-or-leave-it situation because the big stores are their largest selling outlets.

This got me thinking about the culture of prompt payment in this economy.

Truth be told, the government and the public sector in general are even worse culprits than supermarkets when it comes to settling invoices.

We have yet to evolve a culture of prompt payment in this economy. Yet capitalism cannot thrive in an economy where invoices are not paid on time.

There was a time when the excuse and standard refrain to a supplier demanding payments was “the cheque is in the mail”.

Another well-known excuse given to suppliers is: “One cheque signatory is out of town.”

It was common to find a government supplier waiting for weeks just because a junior clerk has hidden payment vouchers in his drawer to arm-twist suppliers to pay backhanders.

With the march of technology towards automated payment systems such as the real-time gross settlement system, the government’s G-pay system operated by the Central Bank of Kenya, and the introduction of cheque-capping, limiting cheques to Sh1 million, it was expected that things would change.

Chasing payment has become an industry all on its own, complete with agents, brokers, and well-connected influence-peddlers.

Senior corporate executives spend a lot of time and resources chasing payments that are legally due to suppliers.

Indeed, delay in payment of invoices by the government is what has undermined programmes such as the much-touted “access to government procurement opportunities” that allows 30 per cent of contracts to be given to the youth, women, and persons with disabilities.

Such well-meaning programmes have not achieved much because invoices are not paid promptly.

The absence of a culture of prompt payment is the reason the government consistently buys goods and services at nearly three times the price everybody else does in the open market.

What can be done? We are at a point when we must now start debating the possibility of introducing a prompt payment law to cover transactions in both the public and private sectors.

I read somewhere that in the United States, there is a law that enforces prompt payment to suppliers with specific time frames. If there is a query on any invoice, public agencies are obliged to pay 90 per cent of the invoice on the 25th day.

The private sector is also bound by these standards. I also read that because of prompt payments and volumes, the US government consistently buys goods and services below market rates.

In the UK, prompt payment laws oblige government contractors to pay their sub-contractors at the time they get paid.

Opposition leader Raila Odinga has given notice that he will present a prompt payment law to Parliament for discussion.

With the timing of the announcement — coming when elections are only months away — it is likely that political motives will be attached to the proposal instead of a sober examination of its economic merits and demerits.

Still, I hope that the proposal will generate enough public interest to prompt us into a national debate on an appropriate prompt payment law.

We must embrace a culture of prompt payment. When we do not pay our bills on time, it is the economy that suffers.

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