Delay in payments to MSME- Blog three

One of the most important structural rectifications required in the MSME sector in India is to address the problem of delayed payments.Whether in manufacturing or the Services sector, the small scale units face the problem of delayed payments (recoveries of due) from their clients. As most of these clients are big units, the subsidiary MSME units (often sub-contracted to these bigger units) have to wait until payment is released. This in-turn exacerbates the financial dependency of the entrepreneur and his/her capability to start the next cycle of production as 90% of the MSME enterprises are operating from self generate funds. As the sector is capital intensive, MSME units are rendered sick in the case of non-payment of dues or prolonged disputes. Although the institution of micro & small enterprises facilitation Council (MSEFC) and the recently announced Credit Guarantee Fund have provided some hope for speedy resolution of disputes between the supplier and the client and covering financial risks respectively, the ground situation has not improved much. As many workers in the sector are illiterate or schools dropouts with no kind of formal training or skill sets, approaching an arbiter is the last option, as they risk losing an established clientele. A limited knowledge of financial and judicial institutions also obligates the entrepreneurs to wait for their payment rather than approach banks or the MSEFC.

A concentrated effort is required, especially towards restructuring the credit policies to address the delay in payments issue for MSME is recommended.