India MSME Summit 2022: Experts discuss ways to minimise delayed payments

According to a report by Global Alliance for Mass Entrepreneurship (GAME) and Dun & Bradstreet India, delayed payments due from buyers to MSME suppliers amount to Rs 10.7 lakh crore per year. 

Unveiling the report, Union MSME Minister Narayan Rane said, “The complexity of the problem will need a lasting solution. All stakeholders—buyers, solution providers, and MSMEs—should come together and address the problem of delayed payments.”

He added that the government is implementing a series of interventions to address delayed payments as it is weakening MSME suppliers and impeding their growth.

During the fourth edition of the India MSME Summit 2022, MSME stakeholders discussed their experiences with delayed payments and how it impacts business operations. 

The panel comprised Geetha Krishnan (Director and CEO, Fragrant Kitchen), Sanddhya Yadav (Director, Tulip Flori), Winny Patro (Co-founder and CEO, Recordent), and Mukesh Mohan Gupta (National Board for MSME, Ministry of MSME). It was moderated by Kinjal Sampat, Vice President, Research and MEL, GAME.

Struggles with B2B payments

Geetha Krishnan is the proud owner of Fragrant Kitchen, which woos many dessert connoisseurs in Bengaluru with its wide range of cakes, rolls, bread, and other baked products.

“When it comes to the B2B [side of the business], there are a few customers who pay on time and some take our orders and disappear with no response or payment. Their numbers change. However, when they have a requirement, these numbers become available again. That’s the challenge we continuously face,” says Geetha.

Managing delayed payments from customers is a tedious task for Geetha and her team. After doing several follow-ups, the company sends its delivery executives to speak to its customers when they place their next order and wait for someone to speak to the team. While in some cases it has been effective, in many others, it’s not, she adds. 

Tulip Flori Founder Sanddhya Yadav, who deals in B2B and B2C flower designing and supplying business, also had similar experiences. In its B2C model, the company takes its payment once its work at any event is over. 

However, in its B2B model, it supplies materials to its customers and takes payment for a year. 

Citing an example, Sanddhya says that a three-year-old client of Tulip Flori’s changed its payment cycle from a year to 10 months amid the COVID-19 pandemic. Although the company had supplied for two months in April and May, it suffered a loss. 

She adds, “They're coming back and saying we will pay 5 percent less than whatever rates we agreed the previous year. It is not possible because rates are appreciating everywhere. We're not even charging extra for transportation. We're getting to a complete loss.”

Is timely cash flow a problem?

After observing several customers, Winny Patro, Co-founder and CEO, Recordent—a fintech startup in the non-banking payment bureau sector—says, “The number of excuses is inversely proportional to the number of consequences you have. So, if you have no consequence, the excuses are more, and vice versa.”

According to Winny, MSMEs have always faced the challenge of timely cash flows.  

Moreover, the COVID-19 pandemic combined with the nationwide lockdown put many small and medium companies out of business, while some managed to sail through.

He says, “There has been a change in the mindset among SME entrepreneurs after the pandemic and lockdowns. Most of them have adopted digital thinking. The surviving SMEs are seeing a major restoration in sales, and the Government of India is supporting the MSME sector on many fronts with supportive policy changes and enactments.” 

Policies for MSMEs

Mukesh Mohan Gupta, National Board for MSME, Ministry of MSME, urges small and medium business owners to register on the Udyam Registration portal. At present, nearly 9.3 lakh MSMEs have registered on the portal. 

He adds that under the Micro Small and Medium Enterprises Development (MSMED) Act, a buyer is liable to pay a compounded fine if they fail to make a payment to the supplier within 45 days from the day of acceptance of the goods/service. The fine is compounded monthly on the amount at three times the bank rate notified by the Reserve Bank of India (RBI).

 The MSME ministry also launched the MSME Samadhan portal that enables MSMEs to directly register their cases about delayed payments before the Micro and Small Enterprise Facilitation Council (MSEFC).

The Chamber of Indian Micro, Small and Medium Enterprises (CIMSME), an MSME representative body, has also launched an online portal for MSMEs to report any payment defaults by their private or government buyers 45 days from the date of invoice generation. 

The recently launched platform allows MSMEs to report delayed payment issues, check defaulters and the amount pending to MSMEs before accepting new orders. 

According to Gupta, since the definition of MSMEs changed amid the pandemic, MSMEs with over Rs 50 crore turnover can use the National Company Law Tribunal (NCLT) and leverage the insolvency and bankruptcy code against companies who are defaulting over Rs 1 crore. 

“Moreover, TReDS can be a good platform if you’re dealing with larger companies,” he added.