Rising Cost of Delays and MSME

• Delayed payments to MSMEs is a norm set by buyers who are often big companies and public sector units.

Effects on MSMEs

• Everyday that a payment is delayed, there is an erosion of value.
• It locks in capital that could have been deployed gainfully.
• It is a problem largely faced by cash-strapped and credit-starved MSMEs, makes the erosion of value even more acute.
• Micro and small enterprises borrow at comparatively higher costs and often operate in very competitive environments, surviving on thin margins.
• Leads to foregoing business opportunities due to lack of liquidity.
• This is a deterrent to the overall growth of MSMEs.

Suggested measures

• Call from the highest levels of government is needed, that such delays are not in the nation’s interest.
• Aim at changing business culture and thereby strengthening all enterprises across the supply chain.
  • Eg: MSME 2006 Act and SAMADHAN
• Regulatory interventions to shift the onus of timely payments onto the buyer firms.
• Strengthening associations and credit practices of MSMEs.

Conclusion

• Delayed payments gives buyers an advantage that the economy cannot afford.
• Small businesses and supplier firms have to work with rising cost of capital due to delays and uncertainty in terms of planning business cycles.
• If this issue is not addressed now, it will add to the burden on MSMEs, working against smaller supplier firms and crippling economic activity for the vast majority of entrepreneurs in the country.