In a rapidly evolving technological landscape, small to medium enterprises (SMEs) in South Africa's information and communications technology (ICT) sector are at a critical juncture.
Despite robust demand, with the sector's revenue anticipated to reach R273.8 billion by the end of 2026, many SMEs struggle to maintain cash flow during the protracted period between securing contracts and receiving payments.
Andrew Keggie, Lula's chief information officer, shared insights on why the gap between winning work and getting paid represents one of the most solvable challenges facing the industry today.
"ICT SMEs commit their costs upfront, paying people, licences, and infrastructure long before a client settles the invoice," Keggie explained.
This creates a financial crunch for many businesses, which often find themselves in a precarious position.
SMEs typically turn to personal credit or are advised to 'wait it out', solutions that fail to address the timing challenge within this contract-driven sector. The bottom line is that costs occur now, while revenue arrives months later.
To escape this conundrum, Keggie advocated for a financing approach that directly aligns with the unique cash flow dynamics of the ICT sector.
He said it is necessary to use live transaction data to guide underwriting decisions, allowing financiers to grasp how these enterprises generate revenue.
Keggie said that accessible tender finance is crucial, particularly as many SMEs wait for payments from the State Information Technology Agency (SITA), the conduit through which government technology contracts are processed.
The recent Pulse of the Public Service bulletin has illustrated the severity of this issue, revealing that R15.5bn in government supplier invoices are overdue by more than 30 days, with provincial departments accounting for 98% of the total.
Such delays in settlement can have dire consequences, pushing small suppliers to resort to borrowing, layoffs, or even closure.
Keggie further said that the timing gap in payments is currently the clearest obstacle between a healthy order book and a viable business model.
“In a contract-driven sector, an ICT funding request usually signals strength,” he noted.
"It tells you the work has been won, and the client intends to pay; the only missing element is the capital to facilitate delivery until the invoice clears.”
He encouraged SMEs to integrate working capital management into their operational frameworks, treating it as a vital infrastructure component necessary for maintaining project momentum.
Moreover, the rapid adoption of artificial intelligence (AI) in South Africa, where more than two-thirds of companies are now either using or experimenting with AI, presents unparalleled opportunities for ICT SMEs.
As the demand for larger and more intricate technological solutions surges, so does the need for the upfront financing necessary to deliver these projects effectively.
While the challenges are manifold, Keggie is optimistic.
He said, “The payment gap is the most solvable issue facing our sector.”
As SMEs increasingly leverage funding solutions, such as Lula’s Cash Flow Facility, which has provided more than R980 million to 987 ICT businesses since its inception in 2015, they can position themselves to thrive despite the ongoing challenges. By refusing to let the payment cycle dictate their growth potential, SMEs can pave the way for a more stable and prosperous future.
ashley.lechman@nationalmg.co.za