Overdue invoices pose biggest hindrance in SME growth

 Chasing overdue payments is the biggest obstacle in the growth of the small and medium scale enterprises (SMEs). To get rid of this unfair business practice, the small traders have sought government intervention with the setting up of a full-power regulator which will ensure the timely payment of all invoices by the big players.

Reports suggest that the problem of late payment is continuously affecting the cash flows of numerous small companies and severely restricting the efficiency of their business. Hard hit mid-sized traders have demanded the authorities to enforce some rigorous regulation and play a proactive part in doing away with this ailment. Primarily, the irregularities of large players are responsible for the dwindling cash flow of the small scale units.

The SMEs or small scale industries (SSI) say that there are very few big companies who follow the payment norms of 45 days and give a lame excuse of not receiving the bills, which is always sent along with delivery of goods.

The syndrome needs to be cured on an urgent basis as it is continuously hitting the SMEs hard and is the reason for them reeling under the pressure of overdue invoices. Usually, the large companies attribute the delays in settlement of payment of bills to lengthy and complex bill passing procedures, following the cheque preparation, signing and handing-over procedure, which entails a few weeks to months to come up with a final payment.

Besides, the interest retrieving is another matter of concern for the mid-sized companies. In a bid to maintain a healthy and long-term relationship with their clients, small traders turn a blind eye to the interest and the clients leave no stone unturned to take undue advantage of the situation.

The government offers a legal approach for SMEs facing such a problem in Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.. It is aimed to facilitate the promotion and development besides competitiveness enhancement of MSMEs.

In order to curb the growing menace of overdue invoices, the representatives of several small firms have submitted there suggestions in a survey, helping the small traders to get their accounts paid much more quickly while keeping all of their clients happy without facing any confrontation.

The introduction of credit policy in an organisation has been voted as the best way to protect the revenue of the business. An effective credit policy not only ensures good commercial practice but also protects the revenue. The creation of credit policy involves a secured copy of all invoices in a file, along with a weekly check on them and act accordingly.

On the other hand, the constitution of an SME certificate-issuing body has also been hinted as the measure to pause the late payment sequence. Small traders seek the body to have powers to keep a close watch on big firms, conduct audit at frequent intervals, and issue No Objection Certificates (NOCs).

The introduction of a 'credit card type system' can also minimise the problem at some extent. The industry seeks the body to come up with defined credit-period among the parties and in case the period has not been mentioned, it should include the maximum number of days to clear the payments. The system should also include the lenders to offer a collective system of operation of settling the payment and the credit period.

The setting up of a credit-rating body to voice problems and concerns of SME sector has also been proposed by the respondents. The body is recommended to be constituted through a forum or a third party.

The government should come up with a stricter legislation against the bigger companies who are disheartening the potential SMEs with unfair business practices and affecting the small and mid-sized companies who have limited cash flow and limited bank support. The joint cooperation from the fellow-traders and government is highly required to reduce this menace.