By Nish Bhutani
Credit and Finance for MSMEs: “It will cost me $25 to wire the funds,” said my US-based cousin. Then, he proceeded to ask me about routing and account numbers, and physical addresses. To transmit money to another account in the same country? Wow, I thought – the US is really far behind. Here in India we only provide a UPI address, much like an email address, or even a mobile number if both parties are on the same payment app. Sure the US has Venmo, but it’s neither universal nor does it enable bank-to-bank instantaneous transfers for free.
Mobile and online payments were already gaining ground in India before the pandemic provided the extra impetus. But to say India is miles ahead in the speed and ease of payments is to tell only part of the story. Just because we can pay fast, doesn’t mean we do. This is a contradiction at the heart of Indian business, where new technologies and cutting-edge unicorns intersect with old ways of doing business. When this happens, both sides of the business arrangement pay a price.
Who goes slow?
It isn’t easy to categorise the circumstances under which the go-slow-on-payments culture rears its head. A consulting company head described to me their recent ugly experience with an ostensibly forward-thinking VC-funded startup. Months of delayed and partial payments for a hugely successful project culminated in a ‘request’ to reduce fees after the work was largely completed. The opportunity for future work was held out as a carrot – as if earning the same money twice was a sweet temptation! The consulting head communicated politely, but firmly, that they would not have them as a client again. But not every vendor is in a position to do so.
This culture of slow payments extends to some of the largest firms in the country, with one particular behemoth notorious for squeezing every last drop out of its hapless vendors. Nor is it uncommon for unethical managers to ask for a ‘clearing fee’ to have one’s payments processed.
Why so slow?
I spoke with a few business people to understand the motivations behind this reluctance to pay. One owner of a midsize luxury-goods trading business put it down to expectations – “Indian business is ruthless. People act like crooks, and expect the same”. Another explained it in practical terms, “I am squeezed by my customers, so I do the same to my suppliers – otherwise I would be low on cash”.
These explanations struck me as incomplete. Paying slowly is now reflexive in most businesses. Invoices sit unattended in inboxes, awaiting approval by managers. Receivables are reviewed meticulously, and debtors chased down, while vendors are not prioritised unless they call repeatedly or threaten to stop important work.
To some degree, this is an extension of a culture that responds to the loudest voices, while assuming that the polite and patient have less urgent needs. It is also an extension of our famed thriftiness. We would rather haggle on everyday payments – 50 rupees here, 100 rupees there – even if the same time would yield a higher return if spent on re-balancing our investment portfolios.
Loss aversion – placing greater weight on losses rather than gains – is embedded deeply in the human psyche through millions of years of evolution, with Indians embodying this trait’s phenotype to perfection. We simply don’t like the feeling of parting with money.
Meanwhile, the hidden costs of slow payments are not considered. In the example of the consultancy mentioned earlier, the client team they worked with daily felt frustrated at this unnecessary distraction. The time wasted on payment-related deliberations, the intentional slowdown in the consultants’ execution, and the stress on everyone added up to unquantified but significant costs – far greater than the paltry sums involved. Other hidden costs commonly encountered in anticipation of payment delays include vendor price inflation and over-billing.
Not everyone goes slow
It must be said that Indian business culture is not uniformly dysfunctional with payments. Most small businesses that run on reputation, place a high premium on trust.
Some businesses I have dealt with pay within days, and if they can’t, vendors get a heads-up ahead of any reminders. Poor cash management? I see it more as basic fairness and a way to build loyalty with quality providers. When faced with a genuine cash crunch or an urgent need, the accumulated goodwill generates immense flexibility from vendors, who prioritise a fast payer’s needs over those of others.
There are other examples of good business practices in India. Upon returning to the country after many years in the US and UK, I was pleasantly surprised when a contractor renovating our office started work on a handshake, without an agreement in place. I have been surprised more than once at the honesty of cab drivers in Mumbai (though I must add, not in Delhi), and have been struck by how often small contractors will not quote a price, simply accepting whatever I deem appropriate.
But a mysterious Einsteinian phenomenon takes hold in the step up from a small proprietor-run business to a larger company. Time stretches for payables, even as it contracts for receivables, and the merry-go-round begins.
How to go fast
Part of the solution can come from business schools, where teaching places emphasis on cash management that works on paper, without sufficient focus on relationships and their long-term impact on the health of the business.
Paradoxically, trusted relationships are as much a part of Indian business as cash conservation. Our business schools would do well to emphasise the positives in our traditions. For with frayed relationships, one also loses the enjoyment derived from a job well done for an appreciative customer who pays joyfully. Joy from paying? Now that’s progress no payment-tech can beat.
Nish Bhutani is a professor at BITS School of Management and Founder & CEO at Indiginus. Views expressed are the author’s own.