What’s The Scoop With Flipkart?
“The digital industry is suffering because there have been several cases where advertisers default on payment… We do not have a strong industry body in terms of payment collection yet.” – Amar Deep Singh, CEO, Interactive Avenues
(article originally posted here)
Between April and May 2016, one of India’s e-commerce leaders – Flipkart– filed cases against 20 of its clients for payment, to collect unpaid advertising dues.
Unlike Snapdeal and Amazon, who charge their clients ahead of time,Flipkart provided advertising services to clients on credit.
Though this move made sense as an advantageous proposition to attract more clients away from competitors, they have now initiated legal procedures against non-paying patrons who respectively owe them anywhere from Rs. 90,000 ($1,350) to Rs.1 crore ($150,000).
Is This Non-Payment A Common Problem?
The Indian business culture is infamous for the chaotic state of its payment practices. In fact, India has the longest average payment delays in the Asia Pacific region (Atradius Payment Practice Barometer).
Furthermore, 97% of Indian SMBs were paid late by their clients last year.38% of these businesses claimed that the late payment was an intentional move by clients. It was a means of using trade credit to finance their own working capital needs.
What’s more is that most of these companies will never enforce their contractual terms on overdue Accounts Receivables. Even when 1 in 2 B2B SMB invoices are paid late. And 1 in 7 B2B invoices are still pending past 90 days.
This is because enforcing a contract in court for non-payment by a client can take up to 3 years and 40% of the claim value to resolve (Doing Business India). By the time suppliers manage to get their money from the over-burdened court system, they’re already sinking under.
Which means that larger clients and buyers run pretty roughshod all over smaller SMBs in their supply chain. They even threaten to withhold payment altogether if their suppliers don’t give them unreasonable discounts to get paid faster.
Large buyers are well aware that their smaller suppliers are:
- Either not aware of their legal rights in such situations;
- Won’t act upon their legal rights because they would choose preserving business relationships over getting paid faster;
- Will be tied up in an expensive legal case for years if they try to take matters to court.
This has created an environment where only the most exclusive businesses can demand payments upfront. While others are usually forced to roll the dice on the kind of client they land up with. Or have to face being ignored altogether by prospective customers.
To put this in perspective, for all the talk of “Why don’t businesses just demand payments upfront”, 98% of Indian SMBs extended goods and services on credit to their clients in 2015.
And if you think the situation is bad for regular Indian SMBs, it’s even worse for businesses which deal in digital services or mass communication products.
So Why Does This Story Matter?
Because the Internet and Mobile Association of India (IAMAI) has used the publicity provided by this issue to push for the development of a payment recovery mechanism for their industry.
Several of the largest digital communication platforms and services are members of the IAMAI. And the organization is wisely using this move by Flipkart to justify enforcing meaningful out-of-court payment protections for the digital communication service industry in India.
The issue of late payment has been a given in the Indian business culture for a long time, to the point where it’s barely mentioned in mainstream media. Even according to law firms interviewed on the Flipkart matter by YourStory staff, this case has gained significance in the media only because a large brand like Flipkart was involved.
This is why, by this point, we’re sure you’re asking – How does this affect me as a small business? Of course Flipkart, a well-known brand, would be able to afford taking its clients to court. Yet if we, as small businesses, did the same – we’d probably be bankrupt by the time a verdict came in.
First, most late or non-payment situations can be addressed by integrating global best payment practices into your business – which Hummingbill’s Gmail plugin automatically does for you for free.
Second, Indian companies are gradually getting less court-shy in getting back money they’re owed by non-paying clients.
Third, the actions of the IAMAI shine a light on the necessity of out-of-court payment mechanisms.
Yet, none of the mechanisms put in place by the IAMAI’s committee will protect other non-member small businesses like you or us. Even though we need these defenses just as sorely.
With that in mind, we at Hummingbill are scaling up our war to break India’s late payment culture in the immediate future. The Indian business culture needs a concentrated effort to create better non-litigious protections which can be enforced. SMBs and startups need shielding from larger buyers who wish to exploit their position on the supply chain.
And for that effort, we will need the support of every single one of you. Keep an eye on this space for more information over the next few days.
In the meanwhile, let us know in the comments section below. If you had the ability to enact out-of-court enforceable protections against late paying clients, what measures (except straightforward mediation) would you put in place?
– Adam Walker & Aniket Saksena