Information technology firms, which are already in trouble due to the slowdown in their key markets, are now facing payment delays. Many firms said collections cycles (receivables) are getting extended.
The average cycle for collection of payments is 70-80 days. In some cases, the delay is already as much as 90-100 days and could get worse. Analysts said while this may not impact the large IT firms, which have enough cash on their books to take care of working capital, it will be the mid-cap and small firms that will feel the pinch.
"Large-cap firms like TCS and Infosys will manage as they still have over a $1 billion as cash. But for mid-cap firms which have limited cash reserves, this will mean a huge impact on their working capital. Normally, firms finance their working capital through short-term loans. Since banks are going slow on loans, interest rates are going up and that could add to the woes of cash-strapped mid-cap firms," said an analyst.
Analysts said while delays are becoming a norm, the bigger problem is the possibility of some clients becoming bankrupt. "The current scenario is such that your clients are getting impacted. Hence there is no guarantee that this is just a small delay and it doesn't convert into a write-down," said an analyst on the condition of anonymity.
"If you know the cycle is delayed by a few days it is still possible to plan ahead, but these days collection cycle have gone erratic. That makes it that much difficult for planning as there is no clear visibility," said Hanuman Tripathi, managing director InfrasoftTech. The company has a receivable period of 30-40 days. In the last few months, the company has seen this go up to 90-100 days.
Tripathi believes that firms in the products and solutions business will be hit hard as there will not be many new ramp-ups. Hyderabad-based Megasoft is another firm, which has seen a lag in its receivables.
"The situation is still not worrying as all our large clients have been paying on time. These clients constitute 60-70 per cent of our revenues. But yes, there has been a delay from the smaller clients, those below the $1 million bracket," said V Balasubramanian, CFO, Megasoft.
Megasoft has seen payment delays from close to 20-25 clients, which constitute 25 per cent of the company's revenue, by 80-90 days. "The delays will have pressure on our cash flows," he added further.
