Working Capital for SIDCUL Suppliers: Cash Credit, TReDS and Getting Paid in 45 Days

Thousands of small units in SIDCUL Haridwar, Pantnagar, Sitarganj, Selaqui and Kashipur supply parts, packaging, services and labour to large companies. Their biggest problem is rarely orders. It is working capital: buying raw material and paying wages today, while the buyer pays in 60 or 90 days. This guide covers the main funding options and the rules that protect small suppliers.

Know your working capital gap

Before you approach a bank, calculate the gap:

1. How many days your raw material sits in stock
2. How many days to produce and deliver
3. How many days your buyer takes to pay
4. Minus how many days your own suppliers give you

Multiply the gap in days by your average daily cost. That is roughly the working capital you need. Banks will ask for this calculation, so having it ready speeds things up.

Option 1: Cash credit or overdraft

A cash credit limit lets you draw money as needed up to a limit, paying interest only on what you use. The usable amount, called drawing power, is based on your stock and receivables, which you report to the bank monthly in a stock statement.

• Best for: ongoing, repeated working capital needs
• Needs: GST returns, financials, stock and debtor statements, and usually security or a guarantee
• Collateral-free limits for eligible micro and small enterprises can be covered under CGTMSE

Option 2: TReDS invoice discounting

TReDS (Trade Receivables Discounting System) is an RBI-regulated online platform where MSME suppliers upload invoices raised on large buyers, and banks and NBFCs bid to finance them. Once the buyer accepts the invoice, you can get paid within days, at a rate based mainly on the buyer's credit strength.

• No collateral is needed from the supplier
• The buyer must be registered on the TReDS platform; many large companies are
• Ask your buyer's accounts team whether they accept invoices on TReDS

Option 3: Term loans for machinery

If a new order needs a new machine, don't fund it from working capital. Take a separate term loan matched to the machine's life. Smaller amounts may fit a Mudra loan; larger ones a regular business loan or loan against property.

The 45-day rule that protects micro and small suppliers

• Under the MSMED Act, 2006, buyers must pay registered micro and small suppliers within the agreed period, which cannot exceed 45 days, or within 15 days if there is no agreement.
• Delayed payments attract compound interest at three times the bank rate notified by RBI.
• Income-tax law also links the buyer's expense deduction to timely payment to micro and small enterprises, which makes many large buyers keen to pay on time.
• Unresolved delays can be raised on the government's MSME Samadhaan portal with the Micro and Small Enterprises Facilitation Council.

To use these protections you need Udyam registration and should mention your Udyam number on invoices and in your purchase orders.

Documents banks ask for

• Udyam and GST registration, KYC of promoters
• Audited financials and ITRs for 2 to 3 years
• GST returns and bank statements for 12 months
• Purchase orders or contracts from buyers
• Stock and debtor ageing statements
• Projected financials for the coming year

See our business loan documents checklist for the full list.

Tips for a smoother sanction

• Route all business receipts through one current account
• File GST returns on time; banks compare GST turnover with bank credits
• Keep debtor ageing clean; very old receivables reduce drawing power
• Don't divert working capital into fixed assets

Supplying to a SIDCUL company? We help small units work out their working capital need, prepare the bank proposal and choose between cash credit, TReDS and term loans. Share your turnover and buyer details on WhatsApp or through the form on this page.