Exporters face cash crunch as buyers demand double the credit to 120 days

Many firms especially small and medium enterprises (SMEs) are bearing the brunt of plummeting global demand with buyers insisting for longer payment cycle of upto 120 days. Payment terms vary from supplier to supplier and generally range from 0-60 days. Federation of Indian Export Organisations (FIEO) has advised its members to deal with buyers in countries where governments have come out with fiscal stimulus to revive demand.

“We are telling our members that when you are looking into the markets, focus on those where government of the country has given demand-led stimulus. For example, take US, it has given $3.2 trillion stimulus already in the form of cash subsidy in hands of the people. Similarly, European Union, despite each country giving its own stimulus, has given 500 billion euro stimulus. So, the point is if you are giving stimulus which leads to demand, the importer when he imports goods would find it easy to sell,” FIEO Director General Ajay Sahai said. “It (focusing on countries that have announced demand-led stimulus) will, therefore, be very good strategy that will work,” he added.

“Very few companies give you letter of credit (LC). It is now all by open terms. You supply the goods and you will get paid after 40 days or 60 days. So, these are pre-fixed and only on very few occasions you can negotiate. Even old purchase orders where shipment is yet to go, the buyers are asking for extended terms. They send you a mail and you give your acceptance,” said Animesh Saxena, General Secretary, Garment Exporters and Manufacturers Association. Amit Sethi, Joint Managing Director at NCR-based Orient Fashions says that payment terms vary from order to order but on an average payment terms have increased by 30 to 60 days.

“This is happening with most of the people. People are accepting that as they have no choice,” Sethi noted. Companies are facing inordinate delay in getting payments and coronavirus-afflicted lockdown has accentuated the problem. The worst affected among them are micro, small and medium enterprises (MSMEs).

While there is no official estimate of the total dues, Angel Broking in a report last week said that total outstanding payments to MSME units could be in excess of Rs 4.95 lakh crore. Further, the central government ministries and departments, state governments and public sector units owe MSMEs more than half of this amount. As per government guidelines, payments of MSMEs are to be cleared within 45 days but in reality it takes much longer. In a private survey carried out by industry body FISME and Skoch Group in April-end, nearly 23% respondents said that it took over 180 days to get receivables while 36.1 percent said they get payments between 90 to 180 days.

Only 40.1 percent respondents said they get payments within 90 days. While payments is a major problem, MSMEs have been grappling with slump in demand in both domestic and export markets adding to their woes. The government has announced a slew of relief of measures including Rs 3 lakh crore collateral-free loan for the sector but the pain is set to continue at least in the short term.