Wednesday, 2 August 2017

Cash will always remain King! - MSMEs

Ever since I worked in a Nationalised bank way back in Mid 70's, I developed an affinity towards Micro and Small Entrepreneurs. I worked for a Lead Bank and we had a RBI Scheme called D.R.I. - Differential Rate of Interest which was just 4% p.a. and slowly Group Guarantee scheme was introduced so as to make finance easy for them.
I have liked these Micro Entrepreneurs ever since. Be it a Newspaper wallah, Milkman, Laundry man, Old newspaper buyer, Plumbers, Electricians, House cleaners, Hair cutting Saloons, Cycle and Motor cycle repairers, Car, tractor repairers, Cobbler, Tailor, Vegetable vendor, Tea/ Coffee vendors, Paan ( Betelnut) vendor (who are small General store in themselves), Carpenters etc. etc.
The reason for this was - In Bank, I had three targets - Deposit mobilization in the village branch I worked for ( 3000 population), Agricultural credit, DRI Loans disbursement, Recovery of money and keeping the Documentation flawless. While my branch earned the Best branch Awards for all of these - I was especially happy that none of the small borrowers of the bank EVER defaulted. While the times were tough in the country with Emergency imposed/ Vasectomy forcefully implemented etc. but I realized that these were the most trusted borrowers.
I began my selling experience at 12. I was a roving cycle salesman and my clientele in the small native town were 1800+ Paanwallahs who were ration card holders ( Matchboxes were in short supply and my uncle's company had ration cards for all of them which I was filling up). I knew them all by name and address and I could remember their faces. When my uncle' Matchbox company began launching Sweet areca nut (Supari), Mouth fresheners using their distributors and cycle salesman like me. They were my best customers and always paid cash! I knew their buying pattern and was earning good commissions to pay for my schooling, uniforms, shoes, sports etc. Small and big, they were almost a General Store selling several regular home use items. Later, I joined a bank, fertilizer company and became their customer as I liked eating paan and smoking which I did for a number of years.
In Bangalore, I was a customer of one such Paan shop till I stopped smoking nearly 4 years ago. My wife wanted Paan for a Shravan Friday Puja and I met him after all this while. I was shocked to see that he was almost in tears! Almost all shelves in the small kiosk were empty. He had a bucket full of Paan - but no cigarettes, Gutka, Paan Bahar Nothing! He did not have the Paans that I could buy for Puja. Apparently, there was an issue!
For three days, on my walking route, I noticed, the shutters were down in his shop. I met him this evening and asked if he still keeps candies and does he have a Vicks tablet ( yes, they keep this throat clearing OTC medicine too). He had them today. I asked him what is the problem? Why is the shop empty. He is a Brahmin from Varanasi who settled in Bangalore some 15 years ago by running this shop in front of a popular restaurant in a developing suburb.
He said, he owes money to all his suppliers and is overdue in paying. I said, these days these sellers sell on credit so you must have a rolling credit. He said Yes, he has not been able to pay for three months. I said you did not go to your hometown, you are here and haven't seemed to have splurged - where did all the cash go? He then said he has a whole lot of customers whom he sells on credit - Paan, Beedies, cigarettes, sweetmeat, candies, fresheners, soap, oil, comb etc. etc. ! Most of the big ones who owe him money are not returning the money. It appeared nearly 90% of his business was happening on Credit. Well. This was not so 50 years ago when I was selling to PaanWallahs! They were cash rich. Many of them would display huge Gold chains and Kadas ( Bangles) and Rings and were lending money to nearby traders on the footpath for good interest. Things had indeed changed !
For small traders, Micro businessmen like him there is no differential rate of interest available from banks now. They depend on the mercy of trade credit. The cost of a location like his are expensive and the cost of making and filling the Kiosk is multi-fold. Of course, now they have the small luxury of a very small fan to dry the sweat from their body. CASH lost its place to CREDIT and the Creditors became dominant. Rather than using the trade credit to do his business well our man became benevolent to his customers who are apparently rich and somehow are having fun to see him struggle and suffer! Our poor entrepreneur who is not literate is learning the lessons of business the hard way!
When I see the cases of e-Commerce companies burning CASH and making huge losses - I am reminded of the old saying I learnt from business people early in my life - the saying was "CASH IS THE KING, I would rather sell less on Cash and have lesser profit than sell huge on credit and keep counting the bills and managing the debtors with difficulty". Another businessman also taught me another good business saying that translates "It is better to repent having sold for less, rather than waiting for the right price and holding on to costly Inventory".
Yet another businessman said to me that he would prefer to do a business which generates Huge CASH and has no Credit - No debtors. He gave me an example and gave a saying which translates "To sell milk you need to go door to door while for Wine/ Alchohol - people come with cash to your shop". Paanwallahs business 50 years ago was similar where people came for Taste and paid cash! No more now, it seems. In my city, where eCommerce booms because of its IT Techies and good employment scenario - the only shops which still do not offer discounts are Liquor/ Alchohol/Wine shops. They even name them as M.R.P. Shops or Maximum Retail Price shops! People still pay cash. In Country's capital, I have stood in Queue to buy a Bottle of Rum years ago.
Choosing the right Cash generating business is still the key to success in business. For a Micro, Small and Medium scale business more so. I am a member of a MSME association which has many auto parts makers, lathe operators as members and the common complaint is that the auto makers do not agree to buy for less than 180 days' credit which MSME find tough to give. Plus the fact that there is corruption in Purchase departments, unwarranted quality issues and shrinkages which are also lumped on these hapless businessmen. The climate is not said to be one where there is EASE of DOING Business in India - not atleast for the MSMEs. Sad but true !
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