SMEs face high pressures on working capital largely due to rising receivables: India Ratings

Credit and financing for MSMEs: The country’s small and micro-enterprises (SMEs) are facing high working capital pressures largely due to increased claims against their buyers and the lack of a similar increase from creditors, it said on Thursday. rating and research firm India Ratings & Research (Ind-Ra). . According to data from the top 1,500 large non-financial companies analyzed by Ind-Ra, the debts of the top 10 large companies to SMEs, as a percentage of their total debts, jumped to 1.24% in FY21, compared to 0.35% in FY21. FY18, and 0.1 percent in FY12.

Debt growth was highest among the top 51-100 companies, at 2.76% in FY21, compared to 0.12% in FY15. “Although the amount of debt to SMEs is less than the total debt for large entities, it is burdensome for SMEs,” Ind-Ra said in its study.

For example, Joseph Dsouza, based in Goa, owner of the Dsouza Biotech dairy processing unit, has repeatedly faced the problem of pending receivables from his buyers. “Currently we are facing the problem of late payments from one of our buyers who is a seafood processor. We have not yet received the payments for the goods supplied and he is already one month late. . Also last January our payments were blocked with another buyer delaying it beyond 35-40 days despite the company informing us of the challenges they were facing in the business which caused the delay in the clearing fees,” Dsouza told Financial Express Online.

“It was a significant amount and the delay had disrupted our cash flow. To manage the situation, we took out additional loans against securities from our bank,” he added without giving details.

The increase in receivables was largely due to higher commodity prices, particularly key inputs such as steel, cement and crude derivatives, as well as late payments from their large customers. In addition, the credit terms of their main suppliers have not been extended, according to the analysis.

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Sector data indicated that sectors such as consumer durables, capital goods, electrical, automotive and accessories which faced great financial challenges due to Covid showed a degree of higher increase in debt to SMEs as a percentage of total debt than those less affected.

“Usually, payment used to be made in 35 to 45 days, but now it takes more than 90 days and even up to six months in some cases. I already have a few crores stuck in payments from various companies and PSUs. You must continually borrow capital from banks, inject your own money, manage through rental income, etc., to support yourself. We are now used to the problem and there is not much we can do about it,” Ramesh Babu, CEO of Paramount Platers involved in chrome plating, told Financial Express Online MV.

Given the current trend of increasing debt, the situation will only exacerbate the challenges for SMEs, even though the government’s Emergency Credit Line Guarantee (ECLGS) scheme has helped SMEs meet increased working capital requirements in FY21 and FY22, the study notes. While extending the ECLGS could further alleviate some of the stress for SMEs, “the same would further burden their debt metrics. Additionally, not all entities would have unused limits available for additional borrowing” , he added.