Indian government to set up payments portal for SMEs

The Indian government is looking at setting up a payments portal so it can pay SMEs faster and improve their working capital and cashflow.

"The government is enhancing the rural infrastructure while also making it easier for Indian MSMEs to increase their digital footprint. The creation of a single-window platform for end-to-end bill payments of MSMEs is one of these steps and will augment digital adoption of Indian MSMEs,” said Vivek Tiwari, CEO of Satya MicroCapital.

The Indian government has been trying to reduce delayed payments to SMEs. According to the Public Procurement Policy, government departments have to ensure 25% of their overall annual procurement is from SMEs, and it is mandatory for them to make payments within 45 days to their suppliers.

The government set up a portal in October 2017 that allows small businesses to register their cases for delayed payments from government departments. This was supposed to introduce transparency as it publicises information about defaulters and late payers in the government. The portal has been in operation for about two years and has seen 21,596 applications filed by SMEs. But when we checked, only 5,680 were converted into cases. The number of applications not responded to by the government departments is also high.

Earlier this year, the Ministry of Corporate Affairs announced new guidelines holding directors of big companies accountable for paying small businesses on time. Delayed payments may land them in prison for up to six months, or fines of between Rs 25,000 and Rs 300,000. The government has also made it mandatory for all companies to file half-yearly returns showing outstanding dues to SME suppliers, and to provide reasons if there are payment delays of more than 45 days.

SMEs in India that suffer from late payments can obtain financing by selling their trade receivables to banks on the Trade Receivables Discounting System (TReDS). The TReDS platform has been around since 2014, but has seen just 250,000 transactions with a total value of Rs 6,700 crore (about US$971.5 million). As of March 2019, only 71 banks and five non-banking financial companies were registered on TReDS platforms. This might change now that companies besides banks are included in TReDS. These companies include fintech startups such as CredAble, which are now allowed to finance trade receivables by SMEs on the platform.

The SME sector accounts 37% of the country’s gross domestic product and a third of its industrial output.