Small businesses regularly suffer from late payments. With feeble financial muscles, they can hardly withstand cash flow problems, but unfortunately they are the worst sufferers in the hands of this evil and unethical business practice. Around two years ago I raised the issue on this same platform and demanded that the government should step in to help this sector get rid of the burden of chasing overdue invoices, but unfortunately nothing has changed since then. This time, however, there seems to be a ray of hope — from the Reserve Bank of India.

Last week, RBI Governor Raghuram Ranjan, delivering the tenth D. R. Gadgil Memorial Lecture, said that the central bank had been discussing with market participants about setting up a Trade-receivables Exchange where small businesses would be able to sell their claim on the large buyers in the market. This would help small sellers get their money quickly and large buyers get a better price for their purchases. The idea sounds interesting, and undoubtedly a very positive one though I am wondering how such a mechanism could be executed successfully. What do you think about it?

Big businesses are the worst offenders — small businesses often complain. In my earlier write-up, I had sought opinions from readers and a number of them pointed out this problem. The RBI chief, in his speech, also admitted this. "MSMEs get squeezed all the time by their large buyers, who pay after long delays," he said. Big corporates know that small firms cannot take them on and so they rely on delaying tactics. I think what can be effective in preventing this is by bringing up some third-party whistle-blowers to name and shame the late payers and defaulters. Such a step is required even if we have the proposed exchange.

In addition, legislation needs to be stricter. At present, we have a Delayed Payment Act as per which payments to MSMEs must be released within 45 days. If a buyer does not abide by this guideline, he is liable to pay interest on the principal amount at a rate three times of the bank rate notified by RBI, compounded. However, implementation of this act is so poor that many view this act as completely toothless. Some even say that the government itself encourages this parasitic business practice — the government agencies are the biggest defaulters.

A few months ago an SME owner told me his sad story — he supplied ozone generator systems worth nearly Rs. 1 crore to a company which had won some contract during the 2010 Commonwealth Games, but soon he found the client running away from payment. Initially, they gave excuses that they themselves were not paid at all — a claim that a RTI application proved false later, and so the follow-up continued, but with no result. I suggested him to file a petition under the Delayed Payment Act . . . but I would have felt much happier if there were some better options to suggest to him.

I invite your opinions.