Cash is king

On a visit to a local Somali business in London, an owner friend Ali (not his real name) confided in me that he was having financial trouble. His business was not doing so well and the bank was at the gate knocking ever harder. He, at that point, felt cornered and out of options. He even joked that his desperation was so acute at the time that he was considering asking me, a permanently broke bloke, for a loan. The business which is a light snack focused restaurant targeting anyone who wanted to have a seat, a cup of tea and snacks is well placed in a busy high street somewhere in West London.

Having spent half a day with Ali, it was obvious his restaurant was the place to be for everyone: from young and old football lovers to British Arabs who loudly discussed politics; and older Somalis debating the day’s news from back home. Even the Sheikhs sat among the people, and young teenagers could be heard giggling and laughing loudly from a far corner while enjoying their food. It was always busy and the staff rarely had a moment to sit down. On observation alone, it was difficult to see why Ali’s business could be in trouble. In fact it was easy to speculate that he had vast reserves to invest in new foods, snacks and upgrading to a larger facility. However, despite its location and popularity, Ali’s business was haemorrhaging money.

Ali and I looked at his books and discovered that after all core costs were settled each month there was barely enough left over for him to pay himself. What became obvious was that either Ali had got his pricing very wrong and did himself injustice or customers were not paying. Upon closer inspection, the latter turned out to be true. More and more customers were promising to “pay later” and writing their debts into Ali’s enormous credit book. This was what I had suspected all along, but I was extremely disappointed with how heavy this black book was with debt. There was a man who proudly wrote his name and promised to pay weekly with an outstanding debt of £28 for the month. He was nowhere to be found and had not responded to any of Ali’s frantic calls. Another guy had treated all of his friends according to Ali after a wedding to his samosas, pastry and teas and was unable to pay for it all as he was on benefits. Despite paying some, a large chunk of the debt remained written in the black book. This miserable story of trust based business had brought a good local institution almost to its knees and this story is not unique to Ali. It is holding back almost all Somali businesses.

Ali over a period of three months chased up every debtor in the book and eventually cancelled those who were unable to pay and banned them from returning until they settled their bills. He now collects payment before serving customers even a cup of tea and he is able to pay himself a salary and keep his bank manager happy. The organisational change that Ali embarked on took time, effort and was co-ordinated with his customers through communication and discussion. Out of this process came out a firm strategy to charge before serving and to have fair prices that can be afforded by all that want to enjoy what the restaurant offered. There were a few customers that resisted but they eventually agreed that they must pay before they eat and that writing it in the black debt book was no longer feasible. It was already hard enough for small companies, especially ethnic ones, to access mainstream funding, without them been hampered by the very customers that buy from them not paying immediately for services and products they purchase.

To a non-Somali Ali’s problems will be put down to stupidity and business illiteracy.  However, for centuries Somalis have traded with good faith and delayed payment for goods and services until they were able to afford it. Many paid and continue to pay in instalments, but this is without interest which is forbidden under Islam and which seriously harms the firm’s capital flow. Most Somali businesses today still allow people to finance their purchase through credit, but it is amazing how many do this without carrying out background checks on customers. The main reason, why in  the developed nations, many Somalis and members of other Black Minority Ethnic groups pay in instalments for their goods and services today, is that they are on low income and are unable to make the necessary full payment all at once. Not wanting to lose the customer to competitors, businesses which are financially struggling themselves sell them things on credit in the hope of securing those customers’ loyalty and offsetting their costs with other wealthier customers’ purchases. They seldom get lucky and instead of securing a customer for life and having a healthy financial balance sheet held together by wealthier customers, they develop the kind of financial black holes that can sink them and generally does end their existence.

Somali business folk must understand that when in Rome they must do as the Romans do. This is a vital lesson. In Somalia it was easy to lend to your neighbour or long term customers and trust them to pay on time when agreed. Even without much written law, customs are strong and bind an entire community together. The respect of an individual depends on their ability to honour their obligations and debt. Unlike going bankrupt in England and America, once the business community has lost faith and trust in a person or group in Somalia, they are ostracised by everyone else. This high price acts as a deterrent. And still does. Even where one is unable to pay, it is customary to force a family member who is able to settle the debt. They will do it to safeguard their family’s honour and prestige. In an individualistic society like England where family ties are weakening within the Somali community, it is suicidal to rely on this bond. It is no longer a viable insurance against purposefully defaulting customers. Another major advantage of Somalia was that people are used to waiting, and if a business person is waiting for a customer to pay then he will just inform his landlord and they will also wait. There is not the litigation culture that exists in the UK – and America. In any case, for small businesses it is too costly to pursue a legal claim in the English county courts for what to most would seem minor amounts, but can really save them from going bust if paid on time by customers who have been trusted by the owners to do so.

Another major headache for Somali business owners is that because they allow credit for customers from their own country, they must do the same for others from other nations. This makes total sense because to favour one group over another is open discrimination and can lose a company many customers and bring legal claims that could and will both bankrupt them and tarnish their reputation. Luckily for Ali all his debtors were Somali and he knew them and their families. What if they were from another country and he had no way of contacting them or their relatives? This disaster scenario can only end when Somali businesses start to cash up every night and record financial earning daily. They can only do this where services are paid for on the spot. In exceptional circumstances, in light of competition and financial circumstances of certain client groups, Somali businesses on big items like furniture can allow customers to pay in instalments. However, they must take a sizable deposit and enter into a contract with customers which they should clearly communicate they will enforce if the customer defaults. Many customers would then either re-evaluate their ability to purchase the product or agree to the payment plan for fear of harming their own credit record which can be socially and economically crippling in the developed world.

Organisational change is necessary for all businesses and especially for those who invest in new countries and environments. Many Somali businesses in the UK, and all over the developed world, are guilty of not adapting and bringing old traditions into new, stricter and regulated business environments in the West. Their lack of preparation and misunderstanding costs them dearly, and destroys their reputation with institutional backers and investors such as banks which solemnly believe that turnover is vanity and cash is king.

Making Somali customers pay on the spot for services and products in full may be an enormous organisational change for many small Somali businesses, but if the owners share their difficulties with the customers, communicate early with them about changes and charge them fair prices, the change can be executed well and without much disruption to trade. Those who wilfully resist the changes say in pricing and on the spot payments, should be kindly asked not to return until they are willing to be reasonable and engage properly with the new service rules. They do this anyway at other non-Somali businesses in the West so why should they refuse them now?

Somali businesses all over the world need to take heed. Business and friendship needs to be divorced permanently from each other. If a friend comes to your home treat him with great hospitality, but if they come to your business they must pay like everyone else.  Trust based debt and lending with a simple handshake and a promise to pay was part of a proud Somali history. However, in an age of technology and rapid globalisation, growth, development and the partnerships needed to turn this into a reality for Somali enterprises require financing. This can only be done with responsible financial management and documentation that can convince investors and partners. Debt books can no longer be acceptable for serious businesses which want to survive and prosper in this new age.

By: Liban Obsiye


Twitter: @LibanObsiye

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