Cash flow crisis crushes many SME businesses in Oman

From construction, fast food restaurants, catering to oil and gas, the Small to Medium Enterprising (SME) businesses face a stiff challenge to survive in Oman due to cash flow crisis. Most of the SME owners sigh with a relief when they secure funds to set up their businesses. But once they declare victory on this first hurdle they would go through the second challenge of trying to win contracts. Most of them are enterprising enough to secure the contracts but soon they realise there is the third obstacle.
Almost all of them get paid late by contractors. Big Omani companies contracting SMEs delay payment for an average of 3 months and some delay longer than that. The cash flow, which is essential for small businesses, is the most critical element of the SME survival in Oman. The start-up funds for most of them are enough to establish the business but not adequate to sustain their operations for months without income.
Most of them look at the legal system to recover their money in time but in that, they find challenges as well. But here in Oman, the legal procedures are not clear enough on how to claim what is owed to them.
Most of the SME owners also feel intimidated to seek legal advice against big companies who have given them their first contract. They feel they don’t want to upset a company and jeopardise long-term relations.
Many companies take advantage of this loophole and there are cases the payments take up to six months to come. SME owners who are brave enough to take legal action, face huge legal fees and the time to get their money in a short time is never guaranteed. No wonder more of them find it mission impossible to stay afloat with their businesses. Statistics show that a third of all SME businesses closed down in the last five years.
At the same time, the same statistics show that there was a 34 per cent decrease of new SME establishments in 2017 compared to a year before. This is not to say that SME projects are not sustainable. There are success stories. But if we take the 2017 statistics as an indication, new SME aspirants will not be encouraged to walk on this entrepreneurship path. It will also defeat the government’s ambitions to double the SME’s contribution to the Gross Domestic Product (GDP) to 30 per cent in 2020. The government also is urging the Tender Board to reserve 10 per cent of all tenders for SME projects. This initiation has been welcomed by many SME owners and it has the potential of reaching the government’s objectives to boost the GDP.
However, struggling SME owners urge that laws must be revised to make it easier for their businesses to survive. To start with, companies contracting a SME must adhere to a new payment code that would give a better protection. Second, the legal system must be receptive to the long payment delay. Third, the Tender Board must work harder to implement the 10 per cent threshold. To see how effective the tender board can boost SME, last year, a total of RO 1.2 billion worth of projects were awarded to companies. The 10 per cent reserved for the SME would constitute to RO 120 millions.
That is a significant amount of cash in the hands of the SME businesses. The potential would contribute positively to the economy of the private sector as well as create hundreds of jobs per year. At the moment, it remains that a lot of small businesses are desperate for contracts that pay well and in time. There is precious little margin for error. Ultimate success for the SMEs hinges not only on their cash flow but the support from legislators and the private sector as a whole. That may need an attitude change to work.