India has about 11 million businesses that have registered with the GST Network. Majority of them are part of supply chains owned and managed by big corporates. The process of getting to be part of a supply chain is hard. The due-diligence process, adhering to standards related to quality, safety prescribed by the buyer, is hard work. Once through, there are many benefits. The biggest among them is a steady flow of orders. It is a happy situation for the MSME owner. Suddenly looks a lot more stable with future purchase orders and cash-flows.
From the outside, everything now looks great. It seems like the business is on a smooth sail. Not yet. The small business owner still has to be vary of the incoming and outgoing cash flows. One of the downsides of dealing with a corporate buyer is that they have payment terms. Most MSMEs get paid either on the 60th day or the 90th day from the date of supply. Some lucky ones get paid between 30th and 45th day of the invoice, but that is still a small percentage. The MSME owner delayed all the outward payments until he received the money from the buyer. It all worked well in the non-GST regime.
The introduction of GST has made it a little tight for small businesses. One of the most significant changes that came about is the frequency of filing GST returns and paying taxes. It is monthly/quarterly, depending on the turnover of the small business.
If an MSME owner has to make payments every month, he is going to have to deal with cash-flow mismatches. The business gets paid only on the 60th day, but GST payments will be due on the 20th of the following month. The cost of non-payment is too high. A fine of INR 50/day and 18% interest on the number of days delayed. Small business owners need help.