Delayed payments hurt the MSME sector Rs 10.7 lakh crore every year– A Report

MSMEs have huge amounts of money locked up; Small firms' weak bargaining power and the normalisation of late payments exacerbate the problem.

Global Alliance for Mass Entrepreneurship (GAME) in association with  Dun & Bradstreet (D&B) India aided by Omidyar Network India on Tuesday submitted a complete report titled “Unlocking the full potential of India’s MSMEs through prompt payments” the impact of delayed payments on MSMEs, to MSME Minister Narayan Rane.

According to the survey, delayed payments from customers to MSME suppliers cost Indian businesses Rs 10.7 lakh crore per year, or 5.9% of their overall value added (GVA). Micro and small businesses (MSEs) in particular bear the brunt of the yearly payment delays (80%), amounting to Rs 8.55 lakh crores.

According to the report, if we take an average of 18 percent GST (state and central) and subtract it from the 10.7 lakh crores in late payments, MSMEs will owe INR 2 lakh crores in taxes.

Rane emphasised the importance of MSMEs in propelling India’s economy to its $5 trillion-dollar future, “Delayed payments from buyers weaken the MSME suppliers and impede their growth. The government has been implementing a series of interventions to address this problem. At the same time, given the complexity of the problem, a lasting solution will need all stakeholders- the buyers, solution providers and MSMEs -to come together to address it.”

In 2020-21, delayed payments account for 65.7 percent of all microenterprise sales, 31.09 percent of small business sales, and 25.19 percent of medium business sales.

The median debtor days stayed longer than the legally mandated 45 days. It took 6.5 months (195 days) for micro businesses, 2 months for small businesses, and 1.5 months (47 days) for larger businesses.

The report also states, suppliers basically gets access to free cash to finance their own working capital cycles by withholding payments (or trade payables) beyond established credit terms, at the expense of MSMEs.

Companies like Maruti Suzuki India, HDFC Bank, RPG Group, Nestle India, Tata Play, Homelane, MTR Foods, CGI India, Lightstorm Technologies, and Bangalore International Airport Ltd, Elgi Equipments, Persistent Systems, and Ernst & Young India signed a ‘Prompt Payment Pledge’ earlier as a powerful statement of their commitment to support MSMEs and encourage economic growth.