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A Trade-receivables Exchange to rescue you from late payments!
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Bikky Khosla | 18 Feb, 2014
Small businesses regularly suffer from late payments. With feeble financial muscles, they can hardly withstand cash flow problems, but unfortunately they are the worst sufferers in the hands of this evil and unethical business practice. Around two years ago I raised the issue on this same platform and demanded that the government should step in to help this sector get rid of the burden of chasing overdue invoices, but unfortunately nothing has changed since then. This time, however, there seems to be a ray of hope -- from the Reserve Bank of India.
Last week, RBI Governor Raghuram Ranjan, delivering the tenth D. R. Gadgil Memorial Lecture, said that the central bank had been discussing with market participants about setting up a Trade-receivables Exchange where small businesses would be able to sell their claim on the large buyers in the market. This would help small sellers get their money quickly and large buyers get a better price for their purchases. The idea sounds interesting, and undoubtedly a very positive one though I am wondering how such a mechanism could be executed successfully. What do you think about it?
Big businesses are the worst offenders -- small businesses often complain. In my earlier write-up, I had sought opinions from readers and a number of them pointed out this problem. The RBI chief, in his speech, also admitted this. "MSMEs get squeezed all the time by their large buyers, who pay after long delays," he said. Big corporates know that small firms cannot take them on and so they rely on delaying tactics. I think what can be effective in preventing this is by bringing up some third-party whistle-blowers to name and shame the late payers and defaulters. Such a step is required even if we have the proposed exchange.
In addition, legislation needs to be stricter. At present, we have a Delayed Payment Act as per which payments to MSMEs must be released within 45 days. If a buyer does not abide by this guideline, he is liable to pay interest on the principal amount at a rate three times of the bank rate notified by RBI, compounded. However, implementation of this act is so poor that many view this act as completely toothless. Some even say that the government itself encourages this parasitic business practice -- the government agencies are the biggest defaulters.
A few months ago an SME owner told me his sad story -- he supplied ozone generator systems worth nearly Rs. 1 crore to a company which had won some contract during the 2010 Commonwealth Games, but soon he found the client running away from payment. Initially, they gave excuses that they themselves were not paid at all -- a claim that a RTI application proved false later, and so the follow-up continued, but with no result. I suggested him to file a petition under the Delayed Payment Act . . . but I would have felt much happier if there were some better options to suggest to him.
I invite your opinions.
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A Trade-receivables Exchange to rescue you from late payments! - See more at: http://www.smetimes.in/smetimes/editorial/2014/Feb/18/a-trade-receivables-exchange-you-late-payments
R SHAILESH RAO | Sat Mar 1 17:31:14 2014
Govt should make it mandatory for all big companies to state in their purchase order "Late payment penalty @ bank interest rate". It should make it a criminal offence, similar to IPC420, companies not paying interest on late payment.
view
indranil patel | Fri Feb 28 11:34:34 2014
Thinking is in rigjt direction , addressed right direction & courageous action to address point , it is great to learn that someone has calibre to judge & declare from right place & status , ( regards late payment)
Another issue about building marketing team & planning , yes it is great that you have noticed is the need of an hour , because i think & say which is proactive market approach , without marketing one cannot plan profits , forecasts , finance & vision ,
I think yours is a practical approach & vision towards rising tomorrow , keep it up your good work ,
I appreciate your views & attitudes
Bravo
Trade-receivables Exchange
Neha Enterprises | Wed Feb 26 14:56:49 2014
Certainly this will be good news for small enterprises. It should be on line of Loan Defaulter system where a particular person or organisation is tracked for their current loan details as well as any defaults previously. It should automatically transfer funds from purchaser's bank a/c to seller's bank a/c after 30 or 45 days from supply of goods.
Good editorial
Bhagawath Prasad | Tue Feb 25 09:03:30 2014
it's nice to know that Central bank Chief is on it to resolve delayed tactics by BIG companies , frankly speaking , in real terms , SME s have become funding companies for Biggies , they get their required material on credit at an average of 180 days, the effect of dragged payment schedules are putting SMEs into high risk bracket , thus the banks charge very high interest on term loans and working capital , at the exit , SMEs have made nothing out of their operations , eventually have happened to sell their properties given to bank and close shutters for ever.
suggestion
Aliza | Mon Feb 24 05:16:05 2014
Give him some time and ask to paid amount in installment.
Or they can take their products (to recover their amount)
in last file a petition under the delayed payment act.
Late settlements of invoices
DANIEL ATTUAH | Sun Feb 23 10:04:20 2014
A simple solution I suggested for Ghana is the "debt clearing system" by which subcontractors/SMEs registered on the kind of exchange you suggest here can do debt netting. The model presents exciting prospects which, once backed by law, can completely change the dynamic of trade and the prospects of growth for MSMEs for the third world in particular. I will gladly join in the effort to pioneer this new paradigm in trade finance and subrogation.
Timely editorial
Kamal Mandavia | Sat Feb 22 02:41:25 2014
Very true and timely editorial. In fact most of contractors / service providers are suffering from "late payments" Please highlight this issue on massive level and media campaign should go on....to open the eyes and ears of RBI and Government.
Delayed Payments - Right steps
Manav Mehra | Fri Feb 21 13:54:00 2014
Delayed payments or non payments altogether is probably the biggest issue facing SME's and something needs to be done. I would be very happy with a robust mechanism such as a exchange where receivables can be traded / discounted. However this will not solve the entire issue. There are endemic problems with the industry and a long receivable cycle compounds it. While we need to put pressure on the establishment on bringing reforms in this area, SME's themselves need to develop a risk management system. It is easier said than done but this will be the only way to safeguard themselves. Smaller companies need to raise flags and then have a plan B in place in case the payment does not come through altogether. Many a times I have seen smaller industries struggle due to lack on internal management systems.
Delayed Payments.
A.B.Ariyaratne (from Srilanka) | Thu Feb 20 18:43:55 2014
RBI intervention is good and encouraged,some countries have a form of Insurance Cover for exporters. For that to be successful the importer has to prove their credential through a similar agency in their country.That system will work rather than doing business by exposing oneself.
A.B.Ariyaratne
Srilanka
Full support
Chhatrapal Surve | Thu Feb 20 11:43:27 2014
I am a concerned trader and supply industrial consumables to different buyers. My portfolio includes big as well as small companies but mostly large enterprises of local owners and despite the fact that they all belong to the same line of manufacturing I receive my payment earlier from small manufacturers, so definitely there ain't no problem of lack of money. Like me there are many other traders facing the same problem and we are one of the most affected victims of so-called payment crisis. it would really benefit us as well as the manufacturing concerns since we are ready to supply goods with a hope of secured investment.
Tall talk of bureaucrats & ministers!
VIJAYAN NAIR | Thu Feb 20 11:01:01 2014
We are also a victim of late payments. It's shameful, in spite of having a separate ministry for the MSME units, there is no respite from this parasitic attitude of big industries. At the same time the Govt. is boosting that MSMEs are the largest employment producer, but what are they getting back? Therefore, there should be strict legislation to control the menace. I fully agree with your views.
Re. the RBI Governor's utterances, don't take it seriously and it's only usual tall talk of bureaucrats & ministers whenever they participate in any public meeting.
Thanks to Khosla and SME Times - newspapers did not cover this important issue
Siddharth Sen | Thu Feb 20 10:43:36 2014
Thanks a lot. The newspapers and other media did not cover this important issue. This shows your commitment to small businesses. Your Facebook page is also another example. SME Times is also working a great job.
Government departments are the biggest defaulters
anonymus | Thu Feb 20 07:04:46 2014
Government , PSUs and government departments are the biggest defaulters. they not only make late payments they also levy LD for late delivery while they themselves pay late. it was in some audit that CAG pointed out non levy of LD by PSUs that they became insistent on same. But CAG never commented on late payments in any of its reports while it has taken up many other anomalies.
We should also have a web page where SMEs can post the details of companies defaulting on payments.
Late Payment to MSMEs, Past President, Kerala State Small Ind Assn
Jacob T. Mathew | Thu Feb 20 05:30:52 2014
Hi,
SIDBI had devised an identical system called Factoring Services to process the receivables. It turned out to be a failure because most of the PSUs and large corporates were not willing to ACCEPT the BILL. Once ACCEPTED the buyer had to pay the concerned Bank on or before the Due date, which they are not willing to commit.
Some third party agency should monitor the payments to ensure that the invoices are paid within the stipulated credit period. Some legislation or Executive order in line with that exist in the US and EU countries should be devised to ensure that MSMEs get paid their invoices. Banks also can monitor the realisation of MSME invoices and report to RBI so that Govt can interfere with the operation of the erring PSUs or large corporates.
Jacob T. Mathew
Past President, Kerala State Small Ind Assn, TVM Dist Unit
Trivandrum
Mobile 9387814661
Dealyed Payment - I am a sufferer
Samba Siva Rao. | Thu Feb 20 05:21:47 2014
Dear Readers and suggesters in fact we are also facing same problem. We have supplied a worth of Eighty lacks Yellow maize to Singapore customer. He only paid 95% of the Invoice. And he has been hiding from us Since April-2013. Please suggest a better Idea to Samba@slvtradersandexporters.com to get rid of this problem. Note : Their mother company based in India only.
Same problem in China
Carl Wu | Thu Feb 20 03:30:09 2014
Hi I'm Carl Wu. The owner of Zhenjiang Dantu Joytak Electronics Factory and Golden Coral Technology Ltd. Actually in China, SMEs are also suffering from this problem as writer told. Myself is this problem's sufferer. There is no way except lawsuit. India and China are both great country with large land.It's impossible to fly to each customer's region to monitor their credit. So now I always remember that truth is Cash is King.
David vs Goliath
P.P. Bhattacharya | Thu Feb 20 01:48:45 2014
This issues of David vs Goliath in industrial circles is age old but now the situation is worse. With higher bank rates and profit margin shrinking, the SME and MSME are totally at mercy at the hands of their corporate clients.
Its my own story that a big and famous restaurant chain had not paid my balance 12% of the cost of equipments more than one year though he has been using our equipments for his own profit.
My client does not receive phone, or acknowledge any letter, though my client is a globe trotter.
This is more or less the story else where also.
At least in the Govt sector your money/payment is assured that it shall be paid but in private sector only God knows.
Opinion on sorting SME businesses delayed payment
N S SALUJA | Wed Feb 19 19:12:02 2014
First of all government should come into role for such situations directly.
Like you cannot eradicate such a problem at one shot but a proven before step should be taken i.e. like without bill paid supply of any petroleum material is very risky & completely illegal , so both buyer & seller avoids it.
If government makes such rules where every material in the market during transportation must carry a bill & payment received slip of neft(bank transfer) kept together the consignment all time will make a seller have quite suitable conditions to convince a buyer to pay on time of departure of any product from its finished stocks. Also the seller must be checked to have a paid slip for every outgoing goods from its end.
Also this will lead to much lower tax steals .
The only point of failure for such thing is government officials become greedy and get bribed other than this system is will be great success help story for buyers.
Also more and more digitalisation & online computerization of every transaction can supress many failure factors including the bribes.
Trade Receivables Exchange - sounds very interesting
Ulhas Shah | Wed Feb 19 16:52:35 2014
Just read the editorial on Late Payment, dt. 18 Feb 2014, sounds very interesting.
As rightly pointed out, bigger customers have been arm twisting the small suppliers, knowing their weak points. I have a customer having outstanding for over 18 months for last 3 years. This customer is holding amount higher than my annual margin from the whole business!! This means, though I have earned profit, I cannot utilise it for my regular business needs, forget domestic necessities. My VAT payment is outstanding since last 2 yrs, paying 18% interest, for no fault of mine. Another customer, who pays very regularly, I am unable to supply him in committed time, just because, I am unable to pay for the raw material, in time.
If I stop his supply, I am not sure of receiving the balance payment. On the other hand, if I continue to supply, the outstanding keeps on rising. With the pattern of receivables received, the outstanding may not be settled in next 2 years, though his jobwork is reduced to 25 % on annual basis (due to recession), further slowing down the receivables payment.
I am not aware of the concept on Trade Receivables Exchange, but surely, some ray of hope seems forthcoming. As the Govt. never helps SMEs with their core issues, what discipline could be expected from Defaulters?
Trade-Manufacturing Associations must come to rescue of SMEs. Will they??
SME misery
Harvinder Singh Arora | Wed Feb 19 12:40:06 2014
Dear Sir,
You have hit the nail. The political disturbance in Andhra Pradesh has left the SMEs in worst imaginable consequences. Come March & 6 hours power cut will be implemented officially, then we will have no power days in a week. The owner has been throttled by debts, labor payments, power bills. One can imagine the situation with total darkness on the other end of the tunnel. One such owner was drawn into the cesspool by a political honcho who wanted to multiply his money. He was wooed by promises of making the best use of his technical expertise with the honcho's investment. When things became worst, the honcho shifted the blame on the technical guy who knew only ethical values and could not handle the situation and survived a massive stroke and slipped into depression wondering what would happen of his family as, the honcho started terrorizing tactics. This is just one case. Similar cases are happening everyday with no one to address their plight. Now, the honcho lost little money from this business but, he has earned more from other ventures. The ethical man's family is on the verge of coming on the road, begging for alms to survive.
Delayed payment by government and semi-government authority.
Sanjog Sheth | Wed Feb 19 12:22:06 2014
How can a MSME supplier enhanced his receivable payment from government organization.
Very interesting to know about this
Phani kumari | Wed Feb 19 10:23:03 2014
Very interesting to know about this.Would like to see how it helps SMEs in liquidating funds and maintaining their cash flows.
Thumbs up for the New Initiative
KK Kelaiya | Wed Feb 19 08:59:36 2014
Very true. We're an MSME where we're having 30 Days or 45 Days of credit, usually, but we're awaiting Lacs of Rupees of Payments due to us since years!! As truly remarked, big players are the worst offenders, they keep on delaying saying we're not having any money with us. Now, if they're not having any money, how are they running the show? How're they making the Salaries?? It's all about prioritising rather than giving us this blanket-Nos.
Follo-up & Recovery of Corporate Dues including from Govt of India and PSUs
Sabhyasachi Purkait | Wed Feb 19 08:08:51 2014
Dear Sir / Madam,
I must congratulate you as your article hits the nail on the head . My company too has suffered very severely on account of default and Late Payment at the hands of AIRTEL and we continue to be unpaid for the last 12 months on some pretext or the other.
The irony here is while they were my clients and I was doing debt recovery and payment collection for them , the worst client on payment is Airtel itself .
That having been said , I was also doing Debt / Default Collection from Govt (Central and State) for Wipro GE-Healthcare and GE-Healthcare for India. And my company name is GNOSIS PRAXIS . The website is www.gnosispraxis.in .We shall be glad to be of help in Collecting of Overdue payments from the Govt / PSUs and corporate .
Pls feel free to contact us on gnosispraxis.in or ssp3007@gmail.com.
Looking forward to helping out the community of SMEs and MSMES.
Regards
Sabhyasachi Purkait
A simple solution is for the small business
Christopher Wilson Fernandes | Wed Feb 19 07:15:36 2014
A simple solution is for the small business to sell their Debt to their Banker. This can be done on the completion of the credit term (mentioned in the contract / invoice) and conditional to there being no litigation or rejection from the Customer. (Customers should record their vendor issues on rejection etc with the Suppliers Bankers well before the end of the credit period, in writing) The Small Business' Banker can then get their money from the Banker of the customer. This should then result in a drop in the credit rating of the Customer. CIBIL should also accept all late payments to Suppliers as another basis for credit rating of a Company.
The responsible person should be penalised financially
kamal kant khandelwal | Wed Feb 19 06:56:50 2014
It is well known that various govt./ semi govt. officers are delaying the payment because of various reasons, personal reason is one of them. If such type of rule is made, MSMEs will benefit. The responsible person should be penalised financially.
Should take help of print, electronic & social media
Hemant Kumar | Wed Feb 19 06:24:21 2014
Many thanks for raising this matter. I saw many MSME's facing this problem. Delayed payment act should be executed very strongly & government should literate MSME's about this act & should literate us about MSME's rights.
About this SME, I think he should take help of print, electronic & social media.
70000 pounds
Subhash Malhotra | Wed Feb 19 06:05:09 2014
Dear Sir,
One buyer of mine had eaten my 70000 pounds sterling since last one and a half year.How can the govt. help me
DELAY OF Payment
VIJAY KUMAR GUPTA | Wed Feb 19 05:04:35 2014
I HAVE SUCH A SYSTEM IN WHICH THEIR IS NO DELAY IN PAYMENT. THE SYSTEM NAME IS (VATT) VALUE ADDED TRACK TAX. THIS SYSTEM IS TOTALLY READY. THERE SHOULD BE A PROBLEM IN IMPLEMENTING THIS SYSTEM BIG BUSINESS HOUSES NOT WANT TO IMPLEMENT THIS SYSTEM BECAUSE OF THEIR IMMORAL REASONS TO CORRUPT THE NATION.PLEASE HELP ME IN IMPLEMENTING THIS SYSTEM. PLZ VISIT MY FACEBOOK & TWITTER TO KNOW MY VIEWS-gupta.vijay0060@gmail.com
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Re: DELAY OF Payment
T Narendran | Fri Feb 21 13:59:18 2014
please provide some more details for this.
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Strengthening of act
Praveen Garg | Wed Feb 19 00:29:07 2014
Delayed payment act should be very strict, so that big fishes don't eat small MSME units
Big Companies worst Offenders for SME's
T P Malik | Tue Feb 18 16:44:39 2014
This is very true that number of larger Companies do not honour their commitments and go on delaying payments or even deny the payments. Our company too has suffered such problems. The answer lies in making ACT & RULES workable rather than forming indirect channels. The 45 days payment Act must be given TEETH so that the larger companies do not take undue advantage.
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