By Auwal Khalid
Small and Medium Enterprises (SMEs) in Nigeria form the lifeblood of the economy. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), SMEs contribute nearly 50% of Nigeria’s GDP and employ more than 80% of the workforce. Despite their resilience, many of these businesses collapse within their first five years. While access to capital, infrastructure gaps, and government policies are often blamed, one overlooked but powerful cause is customer-related debt—the money customers owe businesses due to unpaid purchases.
In many Nigerian markets, extending credit to customers is a common practice. Business owners often allow buyers especially regular ones to take goods or services with a promise to pay later. This practice is fueled by the need to maintain customer loyalty and stay competitive in a market where rivals also offer credit.
For example, shopkeepers, tailors, pharmacists, and even small-scale distributors often sell on credit to friends, family, or trusted customers. But while this practice may secure short-term patronage, it often destroys long-term sustainability.
SMEs rely on daily cash turnover to restock goods, pay suppliers, and cover operational costs. When customers delay payments, businesses are left without enough liquidity to keep running smoothly.
Some customers never repay. In Nigeria, where legal enforcement of small debts is weak, SMEs are forced to write off these unpaid sums as losses. For many small businesses operating on thin margins, a few unpaid debts can mean closure.
While customers owe SMEs, suppliers still demand their money. Many SMEs end up using personal funds or taking loans to settle suppliers, creating a chain reaction of debt.
Chasing customers for repayment often damages trust and relationships. Some SMEs lose loyal clients in the process, while others suffer reputational harm when they are labeled as “too harsh” in demanding payments.
Instead of reinvesting profits into expansion, SMEs spend months or even years trying to recover money owed by customers. This stalls innovation and keeps the business small.
Husaini, who runs a small provision store in Unguwar Dabai Kano state. To retain her customers, she frequently allowed neighbors to buy goods “on trust.” Over time, unpaid debts grew to over ₦500,000. With most debtors avoiding repayment, she could no longer restock her shop. Within two years, the once-thriving business collapsed. Amina’s story is common across Nigerian towns and cities.
Many SME owners extend credit out of obligation to family, friends, or community members. These friends and family members are among the people who destroy businesss often.With inflation above 20%, customers and anyone genuinely struggle to pay on time, but the burden falls on the business.
For SMEs to thrive, the owners have to set some rules on debt giving. SMEs should set limits on how much credit can be extended, to whom, and for how long. By doing that a lot of debt would be repaid, for it is only given to those who you would repay.
Many SMEs rely on verbal agreements. Maintaining written records even simple notebooks or mobile apps help to track debts and enforce repayment. Digital credit management tools and mobile money platforms can send automatic reminders to debtors, making repayment more structured. And, Instead of full credit, SMEs can require part payment upfront. This reduces the risk of total loss.
SMEs in the same community or sector can create joint blacklists of chronic defaulters to discourage irresponsible borrowing. Educating customers about the impact of unpaid debts on small businesses may encourage more responsible repayment.
