Business practices of traders in Ahmedabad, dealing with cotton yarn, will undergo a sea change as Post-Dated Cheques (PDC), advance cash payment and Letter of Credit (LC) will soon become mandatory. So far, it is majorly on credit. However, rising cases of non-payment or delayed payment are forcing businessmen to adopt new practices.
The decision was taken during a recent meeting of businessmen of Maskati Market Kapad Mahajan, Amdavad Sootar Mahajan and Spinners Association (Gujarat). Spinning mills sell yarn to weavers through brokers, who get a commission. Normally payment is made after 45 days of getting the delivery of goods. Now brokers complain that there is a surge in non-payments or delayed payments by weaving mills and weavers.
"Complaints of non-payment or delayed payment rose from 10% about six months ago to about 50% now," said Jitendra Shah, president of Amdavad Sootar Mahajan, a body of close to 90 yarn dealers in the city.
It has also been decided that cases of non-payment or delayed payment will be brought to the notice of MMKM, which has powers of arbitration in trade disputes. Spinners Association (Gujarat) is a member of MKMM. Now ASM will also become its member. "We have urged members of ASM and Spinners Association (Gujarat) to become individual members of MKMM so that they can avail arbitration," said Gaurang Bhagat, president of MKMM.
Having a PDC will make the case of spinning mills stronger when they come for arbitration. "In absence of such documents, we have a limited bandwidth to come to their rescue," said Naresh Sharma, secretary of MKMM. It has also been decided that the order will be placed through a formal communication between the buyer and the seller through a Purchase Order (PO) either in physical or electronic form. The date of delivery and payment will also be mentioned.
Maskati Mahajan has also asked spinning mills to first cross-check credentials of yarn brokers before sourcing an order. "We have asked them to thoroughly check the credentials of traders before dealing with them. They should check if the broker is registered with ASM. ASM will give them the right inputs. If mills do not take reference from us, then we will not be responsible for any kind of trade disputes," said Bhagat.
One of the reason, players attribute, for non-payments is huge fluctuations in price of yarn. "If prices fall, buyers want to renegotiate contracts. If they rise, they refuse to accept the consignment," said Shah.
NEW ADVISORY
- Take orders, physically or electronically
- Take PDC, LC, advance money
- Cross check credentials of brokers
- Take references from ASM, MMKM
- Non-payments rise from 10% to 50%
- Wide price fluctuations disrupting orders
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