Sellers Seek Faster cash cycles from Retailers

Information about Sellers Seek Faster cash cycles from Retailers

Published on January 6, 2017

Author: ashishjhalani



1. Sellers Seek Faster cash cycles from Retailers In a bid to ensure faster cash cycles for its sellers and vendors post demonetization, fashion portal LimeRoad has started an initiative that allows the company to make payments within 24 hours as against the earlier monthly cycle. #DigitalErra Thought Corner Suchi Mukherjee, founder of LimeRoad, told BusinessLine that the initiative was launched to empower small-scale manufacturers and create a culture of support, especially among predominantly home- grown manufacturers. “This move will increase the vendor’s working capital cycle, thus empowering them to further scale their respective businesses,” she added.

2. The programme was launched just after the demonetization move. LimeRoad pays its vendors within 24 hours after the order is delivered to the customer. The average time of delivery is 4-5 days from the point of origin. “This has come as a major relief to thousands of sellers/vendors, who are part of the growing e-commerce industry in India, for whom timely payment has been a major concern,” said Mukherjee. Last year, Snapdeal reduced the levy it charges sellers, claiming it will have the lowest marketing fees among competitors in half its product line. Seeing uptick in sellers’ base, Flipkart, Amazon and ShopClues among others launched attractive incentive and payment reconciliation initiatives for merchants. Sellers adapts with Retailers Sellers have lived with change as a constant partner. They have evolved and adapted to the changing needs of the marketplace. When retailers asked sellers for greater levels of service, the merchandising department was created. Stocking the shelves, once a function of the retail store owner, became a service provided by the seller. This was a new layer of cost for sellers, but an added value to the retailer. As the market demanded new point-of-sale infrastructure, it allowed the seller to create real-time invoices for retailers. In general, larger retailers have higher volume packages which turn over more quickly. This allows the seller to see a faster return on the inventory investment. Inventory is purchased at cost, and sold to the

3. retailer at a profit. The days on hand calculation tell the seller the wait time between investment (payment for inventory) and return on investment (sale to retailer). Conversely, smaller retailers tend to have lower volume packages, which turn over more slowly. This lengthens the cash cycle for the seller, and the related days on hand in inventory measurement. The longer the product takes to turnover, the longer the wait before the seller can convert the inventory back into cash to fund operations. The trade-off for the longer wait comes in the form of higher gross profit. Conclusion The B2B segment is likely to register meaningful growth in FY17 as businesses adjust to changes in working capital cycle. Early reconciliation of seller’s account by retailers helps in improving cash flows and furthering payments to fabricators and artisans. This would be of great help in the ongoing cash crisis. Besides, interest cost will get greatly reduced and that will offer more affordable products to customers.

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