The Hindu Business Line : Cos see domestic clients delaying payments

Mumbai, Oct. 15 The current liquidity crunch in India seems to be creating a problem for IT companies when it comes to collection of dues from their domestic clients. Several mid-tier IT firms have told Business Line that some of their domestic clients have delayed payments by six to eight months.

And the three sectors where this trend is more evident are aviation, manufacturing and government.

Traditionally, Indian clients have been slow in releasing payments compared with their US counterparts; the current financial turmoil across the globe seems to have further accentuated this trend. What is happening now could very well be an early indicator of a probable slowdown hitting the Indian IT services market, a senior industry analyst said.

Flying lows

The Indian aviation industry is expected to post the second highest losses globally — next only to the US — in 2008-09. Indian carriers could end with a figure of $1.5 billion in losses and account for more than half of the $5.2-billion overall losses globally, according to the International Air Transport Association.

Due to this, some aviation clients have not yet cleared the dues of few IT vendors.

In some cases, payments have not been made for about 10 months, according to the CEO of a IT solutions company

The export business of many manufacturing companies has also been impacted by the current financial crisis in the US, causing them to postpone payments to IT vendors.

“Debtor delays are not as bad as up to a year in our case,” said Mr Satish Gaonkar, Vice-President, Consulting Services Practice of Blue Star Infotech, which works with several manufacturing clients.

“However, we are getting payments at least 2-3 months later than it is due, especially from some manufacturing clients,”

Generally, IT companies (servicing domestic clients) give a three-month window for their clients to clear their dues. However, Mr Gaonkar does not believe these delays to be a trend across industries; the company does not have any payment-related issues in other sectors such as media and entertainment.

Delays of six months or more have always been common in IT engagements with government and quasi-government entities, analysts say.

“Occasionally, we do come across cases where some government entities delay payments. However, I have not seen any change in pattern; this is very much restricted to government clients,” said Mr J.K. Gupta, Chief Financial Officer of CMC Ltd, a subsidiary of Tata Consultancy Services.

So, what do companies do to work around this problem?

How they respond

If the delay extends to more than the period stipulated in the contract, then the customer has to pay an interest on the amount due, according to Mr Gaonkar. If there are persistent delays, then Blue Star Infotech decides against taking any new business from the customer.

On the other hand, some firms do not have a time-bound measure when it comes to government clients.

“Typically, invoices in a government contract do not carry a fixed authorised credit period. Hence the question of imposing an interest on the amount due does not arise,” said Mr Gupta of CMC.

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