This report is based on 12 one-month public company tracking data for the year ending September 30, 2020 as a base year. Large bus and auto parts companies are shifting the financial burden of the outbreak embargo to smaller suppliers by delaying payments. A new report says it has improved its cash cycle and met short-term liquidity needs.

While the average number of days large companies held inventory and received payments increased from last year’s 12 this month ending September 30, the number of days they paid their partners increased.

This effectively shortens the cash conversion cycle, which is the time it takes to convert an inventory investment into cash flow from sales.

The report is based on 12 listed companies tracking data as of September 30, 20200 published by consulting firm Ernst & Young.

The average number of days past due for large automotive companies increased from 61 to 76 days, the report said. Even with the impact of unsold inventory, the cash cycle shortened by 13 days days.

These companies actually gained excess cash at the expense of their suppliers. For suppliers to these automakers, the cash cycle for publicly traded auto parts companies has been reduced from an average of 33 days to 27 days. However, cash inflows to the automakers have been delayed, and so have supplier payments.

Over the past 12 months, the delinquency period for listed auto parts companies has increased by 18 days to an average of 68 days. This period. These large parts companies purchase parts from smaller manufacturers (i.e., Tier 2 and Tier 3 suppliers).

The burden of the tight cash cycle ultimately falls on the smaller, mostly unlisted suppliers, Navin said. This report was submitted by EY India Tiwari.

“Many companies are delaying payments to suppliers as a way to improve liquidity. While delayed payments are impacting their working capital requirements, SMEs are struggling to continue building business relationships with their customers.” , Tiwari said. This is usually agreed in advance and usually takes 30-60 days which, but depends a lot on the industry.

From an industry perspective, the average cash cycle increases by six days for large businesses and decreases by one day for medium-sized businesses. However, for small businesses, the review period is extended by 14 days.

Longer cash cycles indicate that businesses and the economy as a whole are less efficient. This means it takes longer for companies to convert profits into cash. The cost of lending working capital erodes the profits of these companies.

“If you shorten the cash cycle, you can free up more cash. It’s cheaper to get more cash than it is to get equity or debt from the market. growth or acquisitions,” Tiwari explains.

Utilities also shorten the cash conversion cycle and generate free cash flow by delaying payments to suppliers such as electric utilities.

Other industries with shorter average cash cycles include chemicals, retail, consumer products and technology. For example, chemical companies are seeing increased demand from the pharmaceutical industry, while retailers are seeing increased sales from e-commerce. The cash cycle for technology companies has recovered as customers across industries face lockdowns and accelerate digitization efforts.

Sectors such as Power Generation, Metals & Mining, Pharmaceuticals, Oil & Gas and Engineering Services have fared less well.