Cash flow is very important to every business, most of Indian businesses faces huge challenge. Sharing my thoughts on where is the problem, who could possibly resolve this major issue which is slowing down Indian businesses. Most of us would have read the “Whats Up” short story on Economics.
Story goes like this: “Masterpiece on Economics :-One day a tourist comes to the only hotel in a debt ridden town in Kenya. He lays a 100 dollar note on the table & goes to inspect the rooms.
Hotel owner takes the note & rushes to pay his debt to the butcher. Butcher runs to pay the pig farmer. Pig farmer runs to pay the feed supplier.
Supplier runs to pay the maid, who in these hard times gave her services on credit. Maid then runs to pay off her debt to the hotel owner whom she borrowed from in these hard times.
Hotel owner then lays the 100 dollar note back on the counter. The tourist comes down, takes his money & leaves as he did not like the rooms.
No one earned anything. But that group of people is now without debt & looks to the future with a lot of optimism. And that is how the world is doing business today!
Moral of the story is “Cash Flow” is very important for any business and whole economy.
What is happening in Indian business today, CFO spends large part of their time to delay any payouts and looks at several ways to speed up the collections. In connected world there are no standalone business, each business depends on other business. When every CFO is delaying the payout and focusing on collection, naturally whole cash flow gets delayed.
Now read the short story again, someone has to start the flow, who is that someone?
My experience in Singapore – when there is a payment term agreed with customer, they make the payment before the committed payment cycle. Large question is how is business in Singapore able to make the payments on time without any follow up or reminders?
In any country irrespective of the industry segment most business does business with government agencies directly or indirectly. In Case of Singapore Government agencies, they have very clear mandate to accept or reject the invoice in 5 days’ time and this is monitored very clearly on date of submission of invoice and when the buyer in government approves the invoice. Payment cycle and approvals are so well streamlined to make the payment within 30 days of submission of invoice – very rarely this gets missed out.
When government buys from various sectors and pays to suppliers on time, naturally cash flow happens from one business to other within agreed timelines.
Most of us doing business in India knows how easy to get dues from Indian government agencies. Highly complex process, multiple people involved, anyone can delay, no clear accountability on processing time or payment time. When government does not pay on time, directly or indirectly every business in India gets impacted. This leads to every CFO in Indian business to delay the payments and CFO wants to speed up the collection – this will never happen.
Let us look at what is happening from Indian government end – when there is any payment due to government from business or consumer – if the payment is not made on time, Government levy penalty – whether different types of Tax paid by business or individual, or any government run services like water/ electricity – even for essential service if the payment is not made within due date, consumer has to pay penalty and government goes to extend even disconnecting such essential service.
When government is so prompt in collecting on time and penalizing the business and individual – why are they not paying on time?
Unless Indian government simplifies the system, make employees accountable for delay, releases the payment on time to suppliers, Indian industry cash flow issue can never be resolved.
