ED Re-visited

Original publish date – Thu, 20 Sep 2012 07:49:02 +0000, Keith

Enterprise development is worth 15 points on the generic scorecard and 25 on the QSE. The revised codes are talking of combining ED with Preferential Procurement and calling the new element Supplier Development.

ED has always been an integral part of  the BEE codes. It helps grow the economy and create employment. The link between procurement and ED is also very important. We believe that a business has a better chance of succeeding if it is supported via extra business, than simply providing seed capital.

One of the ways to perform ED with a supplier has been to assist with cash flow – specifically by arranging early payment of invoices. Many large corporations have red tape to the extent that it can take many months to be approved as a vendor and up to three months to be paid. Small businesses simply cannot afford to finance their big customers. They need the cash flow to purchase raw materials, pay expenses – rent , salaries and wages. Almost by definition if the business is small and in need of ED support it has no, or limited, financing or overdraft. We know of small businesses whose biggest dream, but also nightmare is that they will win a big contract with a large company due to cash flow constraints. That is why the BEE codes suggested that a company that pays ED suppliers early – less than 10 days from issuing of invoice to payment would earn points on the ED scorecard.

Let us re-look at the definition of ED:

“…with the objective of contributing to the development, sustainability and financial and operational independence of those beneficiaries”.

Lately we see too many ED activities that do NOT meet this definition. A company will identify a potential beneficiary that meets the requirements for being a beneficiary – i.e at least 25% black owned (with various other clauses not important to this discussion). The company will then pay invoices from that beneficiary early and claim points. Verification guidelines require that the beneficiary agree to being appointed as an ED beneficiary and supply a “request for assistance letter” and “thank you” letter.

If you visit your local supermarket (let’s assume it meets the definition of being a beneficiary) and you pay your invoice at the till, i.e within 10 seconds of receiving the request, can this really be seen as you performing ED because you have paid for your goods COD? We generally say that if your usual terms to your supplier is 30 days, and he approaches you and explains his financial constraints, and you then decide to change your financial policy towards him and ensure that he receives payment within 10 days, then you will earn ED points.

We have seen many situations where large companies that meet the definition of being a beneficiary are given ED assistance in the form of early payment of invoices. All companies will, naturally, accept any form of cash flow benefit because it makes business sense. We would ask whether the beneficiary could genuinely state that they are receiving ED assistance. We have seen these standard form letters – we even designed them, but we expected them to be used to state the truth!

Put another way would a large listed company that has a annual turnover of many billions be prepared to put out a SENS announcement stating: “

We would like to thank XYZ company for appointing us as their enterprise development beneficiary. The early payment on our invoice no. 34567 dated 31st August to the value of R1596.87 will assist us to develop our business further. This assistance will contribute to us becoming sustainable. We hope that we will eventually become financially and operationally independent”

The acid test is:

  1. Does the business meet the definition of an ED beneficiary?
  2. Are you doing something different to your usual treatment of him and other similar suppliers?
  3. Do your activities meet the definition of ED as above?


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