Covid era has imposed one thing in favor of the wood panel industry and trade i.e., priority on Payment behaviour. Now every company is particular about payments whether it is a manufacturing company or a raw material supplier or even a wholesaler. The average credit period of 90 days, which was a norm till 2019 is coming down towards 30 days in 2021 and there is continuous pressure to achieve this. Longer credit is no longer available.
In the case of raw materials, the maximum allowance being given is 15 days. Raw materials like Timber, Phenol, Formaldehyde, Melamine, etc are cash purchase items for manufacturers in order to survive. Kraft paper, Face veneer, Design paper, or any other item is available on 30 days credit to only so called good parties who have the capability. This is pushing many industries towards closure who were running on insufficient working capital.
The need for working capital has increased 2 fold for wood panel industries. In the case of Decorative laminates and PVC laminate manufacturers, it is needed up to 3 times now because many of the items are imported and they require a longer transit time to reach Indian cities from the day of purchase. The entire decorative surfaces industry is fast adapting to this forced change in the post covid business practice, and now, there is a tendency to push the same to customers.
In trade and retail, this change came in early 2020 when Covid began. The retailers were smart to push it to their customers and sold materials on cash and carry. The wise whole-sellers tried the system post-Covid 1.0 and few of the big traders settled with the new norm. But there were many traders who thought it would be temporary, but are now realizing the shift. Many whole sellers are no longer supplying materials to shops after a pre-set credit limit. The payment cycle in our trade is automatically routing to a better and organized work system.
The sudden shift in the entire payment cycle from 90 days to a kind of cash purchase is certainly bringing the market to a sudden fund crunch. Following this stricter payment discipline is pushing weak players out of the game. The payment push is accelerating the consolidation in the wood panel sector.
I fear, by 2023-24 or even before that, the wood panel and decorative industry will have more large scale players with financial hygiene in place who will be keen on formal business with a maximum of 30 days of payment. Unfortunately, the unaware and uncaring ones will not be surviving to prove it wrong, if they will then they will have to become good paymasters and efficient on pricing and margins. Please note that the same applies to stockists. They have to infuse more working capital to keep good brands in their folio if they are not buying on CD. Because if you are competitive, you have to be a cash purchaser to grow bigger.
Shubh Navrati! May the time ahead be auspicious for all of us!
Pragat Dvivedi Founder Editor Mail to “dpragat@gmail.com”, ( M) 9310612991.