Banks can have no binding on large firms on late payments to SMEs: B. Sampathraman | SupportBiz

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Banks can have no binding on large firms on late payments to SMEs: B. Sampathraman

Late payments have always been an issue, a huge challenge for small and medium businesses that often leaves them at the risk of being left behind.

While there have been many regulations and discussions on finding a legitimate solution for it, none of them have worked in favour of MSMEs.

There has been an interesting proposal from the Reserve Bank of India’s Regional Director Uma Shankar to address this issue, which some of the industry leaders think will remain just a statement forever. Delivering the keynote address at The Hindu’s SME CEO Knowledge Forum, Uma Shankar urged banks to exert the influence they enjoy with large industrial players to pressurize them on clearance of pending payments to SME.

The statement invited sharp criticism from industry leaders who feel it doesn’t help the issue at all. “The solution is not at all practical, it can only be talked about and nothing can be done beyond that. There is no binding on the large industries to listen to bankers and so, the statement has no meaning,” B. Sampathraman, Senior Vice President of the Federation of Karnataka Chamber of Commerce & Industry (FKCCI) said.

He blamed it mainly on the economic principle of “make or buy decision” on which the large industries operate. “They have their own vision, mission, goals, objectives and value systems. To meet all that, they are all very lofty. The “make or buy decision” policy which can be interpreted as - you make it when it suits you and you buy it from outside when it suits you, not when it suits the vendor,” he said.

According to Sampathraman, vendors are the first choice for large industries to enforce the negative impacts up on, when they do not get enough orders for their products. They stops giving orders to vendors, bring them in-house to keep their employees engaged which in turn force the vendors to close down operations. On the other side, when the large organizations are in trouble, the very first thing they do is to delay payments to vendors.

Although there are many laws in place, taking any recourse to law can be fatal for SMEs as they can go on and on until the SSI will become nonexistent. In addition, the SMEs will no longer receive any business from that particular company.

The situation isn’t any better in the public sector enterprises or the central/state government agencies as well, who often delay payment under some pretext or other. “There is no direct solution for this. My suggestion is that the government should make it mandatory for large industries to disclose the details about their non-payments to SSIs that is delayed beyond the 30-day period in their balance sheet. In case of non-disclosure, the SSI should have the option of questioning it,” Sampathraman suggests.