Garment traders give a new spin to payments, adopt updated cash books

MUMBAI: The garment trade is getting savvier by the day. Driven by the winds of change in the sector, companies and stores are running updated cash books. Payments that would have earlier taken anywhere between three and six months are now being completed within 30-60 days, thanks to corporatisation and new transparency standards.

According to Rahul Mehta, managing director, Creative Group, the domestic scene is attracting garment manufacturers as many stores have streamlined their modes of payment.

“The competition has forced stores to use better business practices to retain their suppliers and attract newer ones to cater to the demand,” he explained.

A decade ago, there was no guarantee of payments, and stores would pay suppliers as and when the merchandise was sold. “Today, payments are guaranteed and come in within 30-45 days,” said Mr Mehta.

Prompt payments have made transactions smoother. This could be partly attributed to the presence of large retail chains like Pantaloon, Lifestyle, Shoppers’ Stop and Westside which have standardised business practices.

Ashok Rajani, chairman, Midas Touch Apparels, said, “After the retail culture has crept in, stores like Amarsons and Benzer have legally binding documents against which payments are made.” The supplier raises an invoice on the customer, who gives promissory notes on which the banks can make a payment.

“Some buyers even discount purchase bills to banks, who in turn pay the supplier on their behalf,” Mr Rajani said.
On the other hand, after the quota regime lapsed last year, international buyers are beginning to delay payments. They are no longer bound by the government policy to apply for letters of credit.

Many buyers are now using payment modes like documents against payment (DP) or documents against acceptance (DA) whereby, the documents required to collect the goods are given to the importer only after the payment is made or the draft is accepted.

“In such cases, the payments are even delayed compared to earlier transactions, as the buyer makes the payment only when he requires to take delivery. This is despite the fact that the supplier has already dispatched the goods,” said Mr Mehta.

As a result, despite the fact that exports are flourishing many garment companies are positive about the Indian market as well, and are vying for a share of the domestic market.