Kenya's culture of late payments is preventing businesses - especially small- and medium-sized enterprises (SMEs) - from investing in growth and contributing to economic recovery according to a director of Sphere Business Africa.

Christopher Ommes says late payment is endemic in Kenya, with the government ranking as one of the country's slowest payers.

L/C adoption

Ommes suggests one way of reducing late payment risks is for government to adopt several different types of letters of credit (L/Cs) to guarantee suppliers that they will be paid, and the government that no payment will be made until it receives the goods or services.

The main advantage of using an L/C is that it can give security to both the seller and the buyer he says.

Factoring alternative

Some Kenyan SMEs avoid the downsides of late payment by using a factoring service, but Ommes is not convinced that this is a good option.

"This can be especially attractive where the agreed payment terms are long. However, when using a factor, the supplier suffers a discount on the value of the unpaid invoice," he says.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.