The payment practices in India and the payment behavior of Indian customers is like that of customers anywhere else in the world – it depends upon the financial health of the customer’s organisation. In the rush to gain customers you need to ensure that the credit worthiness of those customers is not ignored. Credit worthiness is a very simple way to check general payment discipline of a particular company.
The common payment practices in India vary from advance payment to 90 days credit. When you are a new foreign firm selling in India it is always a challenge to seek advance payment from a customer. A common practice that can help is to agree to payment through a “post-dated cheque” that honors the payment term (credit duration). You can arrange this at the time of collecting the purchase order from the customer and can make it a mandatory part of the business deal to secure your payment. A cheque with a particular date is a legal document and if it is dishonored, it can be legally challenged in an Indian court. Collection of such a post-dated cheque is possible when the material is readily available as inventory in India. For inventory which needs to be indented from overseas after receiving a purchase order, blank cheques (without an amount, but duly signed) may be collected from the customer the time of the purchase order along with a written commitment (from you) that the cheque will only be banked as per the payment term as mentioned in the purchase order.
Services like “Cheque on Delivery (COD)” are offered by most of the reputed transporters / courier companies. With COD, the transporter ensures the collection of cheque before delivery is made to the customer. But this has its own shortcoming as the customers may adjust the date or amount while issuing such a payment cheque. Therefore while this method helps you secure business it doesn’t allow the accuracy or discipline you need.
Under the Goods and Services Tax (GST), the customer has to pay a supplier within 180 days of the date of invoice, in order to avail the input credit. This brings discipline into the payment cycle, as an annual interest of 18% of the amount for input credit needs to be paid to the Government in the case of non-payment of any invoice by the customer to a supplier.
The best way is still to ensure the payment is collect using a post-dated cheque received at the time of purchase order.
In cases where cheques haven’t been collected and a customer is delaying the payment, legal notice must be sent using ‘registered post’ giving reference to the purchase order and sales invoice. Usually, such notices are effective and with the first such notice, customers release the outstanding payment. Such notices must be sent via a practicing lawyer of the court. Non-payment at this stage enters the legal system.
M+V Sales Order Management team handles the order processing, import, customs, local logistics, payment, etc. for many foreign companies in India. We make sure the entire process is smooth and we use SAP so you can track all the details all the time.