Problems faced by MSME during the Festive season

The festive period is a time of increased demand from both loyal customers who make advance plans and impulse buyers, creating a flurry of possibilities as well as challenges for businesses.   

The season is not only an exciting slot of the year, but it also serves as one of the busiest times of the year for micro, small, and medium-sized businesses (MSMEs) in India. But along with high standards for sales results come high complications, particularly in working capital and inventory management. 

Let's discuss these problems:

Working capital Issues

Working capital is the money a business uses to pay for its ongoing costs and operations. This vitality of any business takes the spotlight at this time. Businesses must make sure they have enough cash on hand to cover these costs even though the season increases revenue significantly.

Due to the significance of managing finances during this time, which includes cash-flow management and advance planning, MSMEs have begun looking at different financing options.
 

Difference between settlement cycles

Working capital management also entails dealing with differences in settlement cycles.

Businesses have to generally deliver final products to other businesses well in advance, with a 40 – 50 day credit period. Unfortunately, they are not offered the same credit terms from raw material vendors or suppliers when procuring raw materials. 

Despite an expected increase in demand during the holiday season, the disparity in payment cycles has made it difficult for MSMEs to manage working capital effectively. Delayed payments from buyers (large corporations/brands) also put a strain on MSMEs' working capital, impacting their capacity to fulfill obligations on time.

Managing inventory

Businesses must optimize their inventory to meet demand as consumers are willing to spend more during these times.

MSMEs also need to accurately forecast and anticipate oscillations in demand or risk dropping out on potential sales due to a lack of required supplies or squandering money on excess stock. This necessitates striking a delicate equilibrium between meeting rising demands and preserving liquidity.

Marketing strategies

In the festive period, businesses execute strategic product launches to capitalize on increased consumer demand and enthusiasm. But every other business indulges in the same practice leading to the competition.

MSMEs are using digital marketing and social media platforms to generate excitement about their new product, differentiate themselves from competitors, and also build their brands simultaneously.