In order to save my clients time and money I ensure that their Enterprise Supplier Development (ESD) interpretation is in line with the letter and spirit of the BBBEE Codes, Act and Sector codes. Here is a list of the most common mistakes that businesses make when interpreting the Enterprise Development element on the BBBEE scorecard:
The targets for Enterprise Development spend are 3% of Net Profit After Tax (NPAT) for Generic companies and 2% of Net Profit After Tax (NPAT) for Qualifying Small Enterprises (QSE). On occasion companies misconstrue the targets as a percentage of annual turnover. VERY expensive blunder.
Enterprise Development beneficiaries are categorized by the BBBEE codes of good practice into two categories – “Category A” for Exempt Micro Enterprises (EME) and “Category B” for Qualifying Small Enterprises (QSE). Spend incurred with “Category A” beneficiaries is multiplied by a benefit factor of 1.25, while spend with “Category B” beneficiaries is recognized at 1 for 1. A common error is that companies overlook to multiply the “Category A” spend by the benefit factor for enhanced recognition or multiply spend incurred with “Category B” beneficiaries by the benefit factor (Category B spend doesn’t qualify for enhanced recognition). Avoid confusing the 2 as this has significant impact on your ED score.
In claiming early payments as Enterprise Development spend, companies must only consider amounts paid for invoices within 10 days and going forward this recognition will be capped at a maximum of 15% of the invoice amount and available points.
In recognizing shorter payment periods as Enterprise Development spend, companies should consider amounts paid for invoices within 10 days. The amount recognized under shorter payment periods is a percentage of the invoice based on the number of days taken to pay. The actual formula used is (15 minus number of days from date of invoice) divided by 15.
For example if payment was received on the same day as invoice, i.e. zero days after invoice received, then the calculation would be (15-0)/15 = 100%. If payment was received one day later, the formula would be (15-1)/15 = 14/15 = 93.3% and so on.
Supporting Invoices and Proof of payments with dates will be required to validate any claims for shorter payment periods.
Some companies “mistakenly” qualify 30 days invoice payments or the full invoice amount paid within 15 days as Enterprise Development spend. This is bad business and you will be painfully penalized at verification.
Currently Enterprise Development means helping small black businesses that are have a 50% or more black-owned or any other enterprises with more than 25% and a BBBEE status of between Level 1 and 6 (This has been removed in the new codes and will no longer apply after After 01 May 2015). Another common mistake here is considering Exempt Micro Enterprises (EMEs) or Qualifying Small Enterprises (QSEs) with no black ownership as Enterprise Development beneficiaries.
It is clear from the above mentioned that it is easy to make these misinterpretations on Enterprise Supplier Development (ESD) and that is why I recommend that you speak to an EXPERT to ensure that your Enterprise Supplier Development (ESD) spend achieves the desired results.
Contact me, Nelson Sebati for dependable help and valuable advice on Enterprise Supplier Development (ESD).
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