KISERO: Prompt payments law is a good idea but it falls short - Daily Nation

Proposed prompt payments law is a good idea but it falls short

Wednesday October 10 2018

Nakumatt supermarket

Shoppers at Nakumatt in Garden City Mall in Nairobi on May 28, 2015. When the retail outlet collapsed last year, it emerged that big manufacturers and SMEs, especially suppliers of perishable goods, lost billions of shillings in unpaid invoices. PHOTO | FILE | NATION MEDIA GROUP 

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I have decided to stay away from the current obsessions of the media to tackle a significant policy issue that the Ministry of Trade and Industry is grasping with but which is not getting adequate public articulation.

One Monday, the Business Daily reported that the ministry is coming up with regulations that will cut the average payment period within which the retail sector pays invoices to 30 days from the current situation where supermarkets arm-twist suppliers to accept credit periods of even up to 240 days (eight months).

If the proposal by the ministry comes to pass, small- and medium-sized enterprises (commonly known as SMEs) which supply vegetables, fresh fruits and other perishables to supermarkets will, by law, have to be paid within 15 days of their production of statements.


I hope to see a national discussion ensue on whether the government is approaching plans to introduce a prompt payments law and regime in the right way. But first, what is a prompt payments law and where else does the system work? What trends can one observe in other countries?

A prompt payments law refers to regulations that aim to regulate and reduce the period within which a supplier must be paid for services provided.

In our context, we must remember that delay in payment of invoices is what has killed all those well- intentioned programmes the government introduced to support young and women entrepreneurs. You win a tender, supply the goods but are forced to wait for months on end before you are paid.


Such a move as to introduce a prompt payments law will be a shot in the arm for SMEs as it will bring financial sustainability to the sector.

Secondly, a prompt payments law is how we will cultivate a culture of paying invoices on time within this economy.

It allows you to curb abusive behaviour by large retailers that dominate and control valuable customer channels and retail shelf space. Supermarkets, especially, know how to take advantage of market power to stretch payment of invoices way beyond the normal trade and industry credit periods.


Last year’s collapse of the then-gigantic Nakumatt supermarket chain was an eye opener. It emerged that the big manufacturers and SMEs, especially suppliers of perishable goods, lost billions of shillings in unpaid invoices.

We saw how this big retailer had become so powerful as to literally force manufacturers and suppliers to be their financiers and bankers — by delaying payment of invoices and dictating credit periods.

Manufacturers are in business to supply products, not to finance the operations of Nakumatt, Uchumi, Naivas or Tuskys. Yet the circumstances surrounding the collapse of Nakumatt clearly showed that manufacturers were converted into unwitting lenders.


This is despite the fact that the manufacturers and suppliers did not have security. They stand no chance of getting back their money, having been relegated to very last row in the queue of the supermarket’s creditors.

What are the trends elsewhere?

I read somewhere that, in the budget for 2010, the United Kingdom set a target of paying 80 per cent of valid invoices within five days and announced that it was exploring the option of moving to faster payments through electronic invoicing by suppliers.

In Ireland, the target for paying invoices in the civil service is five days. In the United States, payments must be cleared by the 23rd day of the month, and all in 30 days.


And there are regulations which enforce prompt payment to suppliers within specific time frames. If there is a query on any invoice, public agencies are obliged to pay 90 per cent of the invoice even as the dispute is being resolved.

But clearly, what the Trade ministry is trying to introduce does not as much as scratch the surface of the problem.

This is how the proposed regulations say with regard to suppliers of perishable products: “Unless otherwise provided in a supply agreement, payment terms for vegetables, fruits and fresh produce delivered shall not exceed 15 days from the date of the weekly statement.”


Where is the protection to the SME when the regulations say that a supply agreement entered between the supermarket and the supplier reigns supreme? Who will enforce the new regulations? Where are the systems to force supermarkets and other suppliers to pay interest to the suppliers whenever they delay their payments?

The proposed law needs a stand-alone law, complete with an enforcement mechanism. How about an SME commissioner?

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