Micro, Small, and Medium Enterprises (MSMEs) form the backbone of Bharat’s economy. It contributes significantly to employment generation and GDP growth. However, MSMEs often face formidable challenges, specifically the challenge of Debt Recovery.
As of now, there are approximately 1,72,736 applications filed for delayed payments in MSME Samadhan.
In this article, we will trace out the common debt recovery issues faced by MSMEs in India.
Challenges faced by MSMEs in Debt Recovery:
Lengthy Legal Procedures:
MSMEs often encounter lengthy and cumbersome legal procedures when pursuing debt recovery, consuming valuable time and resources.
Lack of Awareness:
Many MSMEs lack awareness of their legal rights and available debt recovery mechanisms, leading to ineffective actions.
Limited financial resources hinder MSME’s ability to pursue legal avenues for debt recovery services.
Complex Regulatory Environment:
India’s regulatory environment surrounding debt recovery can be complex and overwhelming for MSMEs to navigate independently. This leads to delays and uncertainties.
Resistance from Debtors:
Debt recovery game is under the control of the Debtor. He may employ various tactics to resist debt repayment that may complicate the recovery process of MSME.
Strategies for accelerating Debt Recovery:
1. Clear Terms and Conditions:
MSMEs must prioritize crisp and clear terms and conditions on their invoices as well as Purchase Orders. They may seek assistance from legal experts and debt recovery professionals throughout the journey.
2. Negotiation and Settlement:
Prioritizing negotiation and amicable settlement with debtors can often get faster and more cost-effective results. In this way, one can avoid prolonged legal matters.
3. Follow-up Mechanism:
Make strong follow-up mechanisms in your organization that help send soft reminders and notifications to your debtors so that there are fewer chances of bad debts.
4. Screening of entities/prospective debtors:
Adopt a good habit of screening/knowing your customers or stakeholders who are your prospective debtors. Keep checking their history, payment schedules and compliances from the available data on the government portal or a simple search engines. This helps you to estimate the repayment nature and credibility of your prospective debtor.
5. Collaboration with Industry Association:
Partner with industry associations to get support related to debt management and recovery. These associations can play crucial role in disseminating information and facilitating dialogue between MSMEs and lenders. You may consider associating with Being Vakil under GrowthX initiative.
6. Technology Adoption:
Encourage MSMEs to adopt technology-driven solutions for better financial management, invoicing, inventory tracking, and payment processing. This can improve transparency, efficiency, and timely repayment, ultimately facilitating faster debt recovery.
7. Setting SOPs (Standard Operating Process):
Setting strong SOPs for your organization in the form of screening-documenting-onboarding stakeholders of your organization enables you to knowing your stakeholders more effectively. In the event of disappearance, you can look out for them especially if they are individuals.
By implementing these strategies, MSMEs can accelerate debt recovery for MSMEs and support the growth and sustainability of this sector of the economy.
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