Rising Receivables Exacerbating SMEs’ Cash Flow Challenge (21/4/2022)
Rising Receivables Exacerbating SMEs’ Cash Flow Challenge
SMEs are struggling to manage their working capital as the receivables from customers are rising with no credit extension from suppliers. The rise in commodity prices such as Steel, Cement, and Crude derivatives along with delayed payments from large customers is fuelling the increase in receivables.
According to India Ratings and Research (Ind-Ra), the share of SMEs in total payables of large corporates has increased significantly in the last 2 years. The sectors such as consumer durables, capital goods, automobiles, electricals & ancillaries, which were largely affected due to the pandemic showed a higher degree of increase in payables to SMEs as a percentage of their total payables.
To manage this crisis, SMEs are increasingly borrowing against their securities from banks. The government’s Emergence Credit Line Guarantee scheme (ECLGS) has provided some relief to the SMEs in FY21 and FY22, but this would also mean an increase in the SME sector’s debt pressure.
