Since the past few years, the Indian economy is growing tremendously. Today India is one of the hotspots for doing business across the world. It offers numerous benefits such as best in class infrastructure, skilled manpower, abundant resources, favorable government policies, ease of doing business in the country, etc. This attracts more and more companies to incorporate their business in India. In fact, many foreign companies aim for selling in India by setting-up their regional base in the country.
Being unknown to the new land, foreign companies often find it difficult to manage their payments in India. In this article, we try to explain the common payment practices in India and the payment behavior of the customers.
Payment Behaviour in India
The payment behavior of customers in India is similar to that of other countries. It majorly depends upon the financial well-being of the customer’s organization. Therefore, it is crucial to assess the financial health of the customer’s organization before entering into any transaction of selling in India. The credit assessment will help you understand the likelihood of receiving the payments from your customers and their payment discipline.
In order to boost business, companies in India grant trade credit to their customers. It is the lifeline of running a successful business. But, when you allow trade credit to your customers, it is important for you to know if they are capable of meeting the agreed terms of the contract. Verifying your customers saves your business from potential risks.
In order to access the creditworthiness of your customer, you can ask them to fill up a form that contains details such as the registered address of the company, details of key operating personnel, PAN and TAN of the organization, GST registration numbers if any, etc. Apart from this, you can analyze the customer’s organization by using the information available in the public domain. It will help you understand the company’s financial status, order status, inventory position, internal processes, etc. Another effective way is to check the ratings given to these companies by the credit rating agencies. It provides a holistic view of the creditworthiness of the company.
Payment Practices in India
The common payment practices in India vary from advance payment to 90 days credit. A common payment practice is a payment via “post-dated cheque (PDC)”. You can make it a compulsory process to receive the post-dated cheque at the time of collecting the purchase order. It is a legal document that can be challenged in an Indian court if dishonored.
Otherwise, you can also arrange for “Cheque on Delivery (COD)”. With COD, you receive the payment even before delivering the goods to the customer.
Introduction of Goods and Services Tax (GST) has also brought a lot of discipline among customers. They can now claim input credit only if the payment is made within 180 days of receipt of the invoice. Moreover, non-payment attracts 18% interest per annum on the entire amount of input credit.
Maier+Vidorno’s sales order management team can help you effectively set-up your business in India. Our experienced team can also handle your order processing, local logistics, import, export, payment and more.