[India MSME Summit 2021] How the pandemic made SMBs look at payment behaviour and corporates care about supply chain resilience

Delayed payments leading to problems in cash flow for businesses is one of the main problems faced by entrepreneurs in the MSME sector. This has become more pronounced during the COVID-19 pandemic. 

The MSME sector is highly heterogeneous, where micro-level businesses like one or two-people shops, face more problems in terms of formal financial inclusion.

At the India MSME Summit 2021, organisations and leaders enabling such entrepreneurs in India delved into the scale of delayed receivables problems and potential solutions for the same.

“A whopping two-third of MSMEs and four-fifth of micro MSMEs face significantly delayed payments," said Tushar Thakkar, Associate Partner at Dalberg Advisors India at a panel discussion on cash flow in a Crisis: Addressing Challenges and Solutions, moderated by Ashwin Chandrasekhar, Vice President of GAME during the event.

He added that the delayed payments problem appeared to be sector agnostic. Ashwin agreed, saying that the challenge has become a “double whammy” situation amidst the pandemic when there is significant demand compression and reduction in revenues. 

ALSO READ

[India MSME Summit 2021] How ‘as-a-service’ solutions can provide a flexible and scalable IT edge to businesses

Behavioural change during the pandemic

The panellists agreed that extending loans is not the solution to the challenge, especially during the pandemic when entrepreneurs are not willing to take up more liabilities.

Sundeep Mohindru, CEO at M1xchange, said, “Entrepreneurs are saying they don’t want to borrow and build an inventory for it to be sold on credit today. I am seeing the discipline of whoever can make payment on time because less business is fine but I don’t want more liabilities in this uncertain environment.”

He added that the pandemic has also made larger corporations realise the importance of supplier chain resilience and their responsibility towards SME suppliers beyond Tier I cities. 

However, they do not possess the right tools to engage with suppliers and developing such tools and platforms could be a way forward, Tushar said.

Solutions and way forward

As a serial entrepreneur and Co-founder and CEO of Recordent, Winny Patro is aware of the challenges faced by small business entrepreneurs. While he agrees digital adoption in the last seven years has made entrepreneurs aspirational and wanting to expand, fear of getting defaulted in payments holds them back.

He said, “We know a good percentage of businesses are impacted by delayed payments but not which businesses and specific payment behaviour of the buyers. Credit buyers have a set of data on loan and credit card repayment but don’t capture B2B payments.”

His tech-enabled credit and payment reporting platform Recordent enables a more disciplined payment behaviour by giving both banking and non-banking data so that sellers can make informed decisions.

It claims to enforce financial discipline by building a repository of B2B payments, preparing reports on payment behaviour that is made accessible to lenders and other businesses who are giving credit.

Tushar said the challenge also presents an interesting avenue for fintech enterprises to step in to leverage alternative data that are being created in silos and drive solutions. He also emphasised the need for digital tools and to develop newer models for the use and integration of data.