Holding money to your creditors is something we (in India) take pride in! We have a parallel industry in recovery agents, bill discounting, cash collectors etc
So many startups and businesses die, simply because they cannot enforce a payment that was legally due to them. This mindset to not pay on time is a vicious cycle that impacts everybody in the system & has a huge impact on cost of doing business.
Profitable on paper, but struggle to meet expenses each month.
We at Markk want to change the status quo & this is how we make it better for employees & vendors to work with us.
Paying people on time:
For employees:
In May last year, when we begun operation in USA, we realized that it is a standard practice in California (and entire country) to pay people every 2 weeks.
People have money more frequently and hence spending remains kind of constant all month long. There is also a better sense of security* among staff.
A simple but useful practice, which I wonder, why is not the norm in India.
We introduced the same for our team in India and I think it works perfectly! We as founders are on our toes knowing that we need to meet this obligation every 15 days (hence be more prudent on cash flow). Similarly the team now gets paid every 2 weeks & hence have better cash flow all month long!
Some hiccups that we had to adapt:
- TDS payments on salary – You pay only once a month to IT. Hence we adjusted tax equally over both the pay cycles but pay IT in the following month.
- Installments worry – Some members were worried that their monthly installments are due on week 1 of each month & what if they end up spending more before that! (some automatic financial prudence kicked in!)
- Pay slips – Do you issue one or 2 pay slips 🙂 ? One: Other companies, banks etc still recognize a monthly payslip!
For vendors:
All payments will be cleared within 21days from date of billing, subject to some exceptions. We would like to bring this down further to 10days.
I take pride in the fact that in last 13yrs of doing business in India, we have NOT defaulted even once with any vendor. Every bill that was raised to us (across my 3 startups) was settled. If we didn’t have the money we either didn’t commit or requested time with interest if any, but never went back on payment commitment made.
Things we will take up next:
- Doing the full & final settlement of payment for employees who leave our services BEFORE their last date.
Any other ideas / suggestions / best practices that you follow & think we can implement to help improve the eco-system?
*In California, as per the law, you need to declare bankruptcy if you cannot meet payroll.