We have a old saying in Marwari for business failure "Punji Thodi. Vyapar Ghana." This signifies that if Business size is more than the capacity of the capital to serve it, you may be in for business failure. The woes of present Indian Business is over-leveraging. Continuous inflation over the years have made them more confident. Biggest and untold for finance source of Indian Business is suppliers' credit. Instead of considering it as last resort, it is considered as means of finance. Accidentally, the cost of this credit cannot be calculated easily, as this is included in the suppliers' price. Based on the experience of the payment schedule of the buyer, the supplier jacks up the price. Moreover, the number of suppliers drop for habitual defaulters and the remaining suppliers jack up the price disproportionate to interest on borrowings. This adjustment is built over a period and its immediate impact cannot be calculated, but it will be definitely higher than the bank interest, as why one will block his capital in debtors.
While, the payments retained for performance is understood, but it is not the only reason for late payments.
It is high time, Indian Banks insist on considering the suppliers credit as a debt in the books of the business to arrive at debt-equity ratio.
While, the payments retained for performance is understood, but it is not the only reason for late payments.
It is high time, Indian Banks insist on considering the suppliers credit as a debt in the books of the business to arrive at debt-equity ratio.
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