Punish shrewd delinquents
Most of the 270 companies whom we have met over a period of 11 months as part of our survey said that one of the major reasons for their crisis is the payment default by large companies. Even those mid-sized companies which procured orders from cash rich public sector institutions face a different kind of concerns. Once their multi crore order is ready for delivery, the principle company which placed the order has to come for inspection.
Payment crisis faced by micro small and medium enterprises (MSME) is still a big concern. The prevailing MSMED Act 2006 that dictates payment to MSMEs within 40 days of raising invoice is not sufficient to tackle the crisis. Shockingly, many of the MSMEs are still unaware of such law. Those who know it do not know how to make best use of it. Many of the companies are poor in communication MSMEs crisis seems to have become more acute, as the habit of defaults by cunning contractors.
Many large corporate entities and even cash rich public sector enterprises continue to contribute to the crisis by their lukewarm response to the payment call of their vendors. Influential first line contractors manage to procure orders through their influences and get them implemented by very small companies at lower rates. Astonishing, but true, these big contractors keep the small subcontractors unpaid for years. On follow up for months and years, the small subcontractors put to teeter on the edge. “When our payments do not come on time we reach a dead end. More the payments are delayed, more the crisis we face,” says Ashokan, promoter of Anntech Offshore Engineering Pvt. Ltd, whose company landed in deep financial crisis after contractors of large institutions like ONGC, L&T, Bharat Petroleum, etc. did not pay his outstanding after completing the works as assigned by his contractors, who include Indian and foreign companies. Anntech is only a small example. That is in fact, a tip of the iceberg. Many small but strong companies face another type of problem. Large private companies and some public sector enterprises boast about handholding SMEs. It is high time to bring the delinquents to face strict action.
Delayed inspection by PSBs mandatorily to be done on orders placed by them with SMEs for several months keeps the works completed by SMEs dormant, on which the SMEs might have spent huge sum. This action hampers the money flow, increases the cost of capital and other consequent circulatory distresses. A mid-sized company cannot hold on such finished works for long.
Large Corporate, Contractors Play Foul
MSMEs’ Payment Crisis
Many large corporate entities and even cash rich public sector enterprises continue to the crisis by their lukewarm response to the payment call of their vendor. Influential first line contractors manage to procure orders through their Influences and get them implemented by very small companies at lower rates. Astonishing, but true, these big contractors keep the small subcontractors unpaid for years. They fail to provide even basic comforts to the labourers deployed by their subcontractors . The labourers, who work in highly risky and hostile environments, are treated like slaves. Why do the first line contractors do this? It is for saving a big money in their pockets without sweating on the project they procured contracts for.
Most of the small subcontractors are very small, running their business hand-to-mouth. If their payments are delayed even for
a day, they will not be able to run their business. Vigorous follow up for months and years puts them to teeter on the edge. They cannot have a dedicated recovery department, nor can they afford a legal recourse Knowing this bitter truth, the main contractors , while sitting on the money they collected from the project owners against the work done by the small subcontractors, finally tell the hapless subcontractors to file case against them for recovery. But these companies who challenge the small subcontractors do not know the implications of such challenges. When the last mile subcontractors are challenged by the contractors to file suit against them in court for recovery of money, the suit can drag In the principle project owners too: who might have already cleared the payments. The project owners may be asked to submit affidavits by the court about the completion of the work where the payment disputes between contractors and subcontractors exist The last mile subcontractors also can procure details of payment from the principal project owners through seeking details under RTL Even though all such sources are available for SMEs, many are unable to explore the ways.
They need to be trained and informed about their rights. Exploiting the hapless section, and more than that, bullying them further is an anarchy. This anarchy is contributing seriously to the socioeconomic crisis as many small companies are forced to close down their shops due to payment crisis, that in effect percolate down to the labourers’ nonrealization of wages. Shocking, large private companies and some public sector enterprises, which are boasting about handholding SMEs, do this indignation. Middle level managers in charge of projects play foul. The ones who manage to get more than salaries do not know the pain of those who cry for their meager salary