Business owners and Principal Secretaries risk a Sh1 million fine or five years in jail for delaying payment to suppliers under a proposed law that seeks to tame the rise in overdue payments.
The Prompt Payment Bill, 2021 currently before the house proposes bills must be settled on the agreed date under a written contract or within three months of receiving an invoice from a supplier in the case of verbal agreements.
Failure to honour the payments would attract interest on the monies due to the suppliers.
The interest will be calculated based on the lending rate of the Central Bank of Kenya.
The Bill comes at a time counties, State ministries and agencies owe suppliers more than Sh435.35 billion, occasioning a cash crunch that has seen some small businesses collapse.
Small businesses grappling with the delayed payments have also lost their property to auctioneers while others have laid-off workers.
Collapsed retailers Nakumatt, Uchumi and Tuskys have gone down with nearly Sh30 billion owed to suppliers in under five years, highlighting the risks delayed payments pose.
“Where a supplier has delivered an invoice to the procuring entity and the accounting officer of the procuring entity negligently, maliciously or without reasonable cause fails to pay the amount due by the prescribed payment date or the interest,” reads the Bill.
“Commits an offence and is be liable, on conviction, to a fine not exceeding Sh5 million or to imprisonment for a term not exceeding five years or to both.”
The Kenya Private Sector Alliance, the umbrella body for businesses, says payment delays by the national and county governments have “locked operating capital, especially for SMEs (small and medium enterprises), forcing them to close business, scale down operations or cut jobs to remain afloat”.
The pending bills date back several years, highlighting the challenges that SMEs face in getting payments for goods and services delivered to the State and devolved units.
