High capital investments - disproportionate to revenues it can generate
Large format printing machines are expensive and need longer time to break even, leave alone recovering the investment. The technological obsolescence is quite fast in this industry, making it imperative for printers to keep investing in new technology and equipment. Since all the printers use sophisticated electronic components, their life is pretty short and depreciate faster; therefore, cost of maintenance is also very high. The print producers need financial muscle to sustain during long Order-to- Cash cycle, which is anywhere between 3 months to 1 year! With unpredictable schedules and very short notice orders from many brand managers, the printing units need to run 24x7 operations and maintain huge inventory of consumables to ensure timely execution of orders that come most of the time in the eleventh hour, that too without POs!
Squeezing Margins:
Primarily wide format print industry survives on billboard printing and advertising of brands at shop fronts; 50% coming from telecom companies and the other 50% from FMCG, Financial Institutions , Cinema and Apparel industries. Due to cut throat competition in dropping call rates, telecom companies are squeezing vendors extremely with low margin or almost no margin procurement methods, which is followed by all others.
Delayed payments by corporates and agencies are putting pressure on working capital management and repayment of loans taken from banks. While the pressure on rates, terma and delayed payments remain unresolved, tax charged on gooda sold is being promptly paid every month on 20th, thereby, adding additional burden of prepaid taxes(paid before collecting from customers) to the working capital requirements.
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All the telecom giants negotiate yearly contracts with vendors with clever terms and conditions that leave no scope for cushioning in the event of cost escalations. Typically, they want an "all Inclusive’ unit price that cannot be changed under any circumstances for the next one year. In the event of government revising the tax rates, increasing cost of fuel and there by affecting the cost of transportation, the vendor has to bear it. Unless the vendor shows the annual contracts and satisfactory profitability, the banks will not extend working capital limits. Without sufficient working capital, the printer cannot execute orders. This has become a vicious circle.
Skewed Payment Cycle:
Since advertising campaigns are time bound and occasion based, they come at very short notice, hence the commercial papers will only be given after the delivery of prints for mounting. This makes realization of money anything around 120 days plus, sometime it even extends up to 180 days or even one year.
Advertising agencies, which connect brands and bill-board owners will only pay to printers after receiving from their customers; worse is that they may not pay at all if their customer does not pay them.
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Operational Problems:
The last minute orders that come from customers without POs and other related commercial documents cause numerous problems to printers – both from Tax authorities and Finance Departments of the client. Almost all deliveries are caught by tax authorities and heavy penalties are levied for not having proper invoices for the parcels. The printer can give invoice only against a PO issued by the client. Many times, out of urgency and compulsion, printers have to print and deliver and later collect the POs. This leads to delay in the billing and until the brand manager gives the PO, the printer cannot raise the invoice and pursue payment with the finance department of the client. If key people move out during this process, it is almost impossible to get the payment from the client.
Delayed payments by corporates and agencies are putting pressure on working capital management and repayment of loans taken from banks. While the pressure on rates, terms and delayed payments remain unresolved, tax charged on goods sold is being promptly paid every month on 20th, thereby, adding additional burden of prepaid taxes (paid before collecting from customers) to the working capital requirements.
Yearly contracts are signed with corporates in the beginning of FY with the condition of timely dispatch. If the dispatch is delayed, corporates either levy penalties or completely reject payment for delayed consignments.
Lack of bandwidth:
As in the case of many other small scale units, requisite managerial bandwidth is always a problem for printing units to control anticipated and unanticipated issues. As a result, all the units either depend on consultants or use their self knowledge; eventually leading to unprofessional management. Corporates, government authorities and financial institutions often take full advantage of this situation to squeeze the printers.
Irregular power supply:
Irregular and prolonged power cuts are pushing printers to depend heavily on generators and the frequent fuel price hikes are eventually hitting hard by escalating production and dispatch expenses. Affecting the already wafer thin margins and profitability, ultimately this is making the balance sheets look weaker.
Suppliers support:
The delay in getting the payments from the clients will show its effect on the payments the printer has to make to his raw material suppliers. It is affecting the relationship with the suppliers and at times, the printers literally have to beg for supply of raw materials like media and inks. Apart from this, the non availability of spares with the supply chain partners of the machine manufacturers is another big concern for most of the printers. If a machine breaks down, many times it takes two to three weeks to get a spare and get the machine running. The erratic supply of OEM inks also causes unpredictable delays in printing schedules unless the printer is ready to maintain huge inventory to meet the exigencies.
Taxing Printers:
The difference in VAT rates between Karnataka and other states, is severely affecting the large format printers operating from the state. It is becoming difficult to be competitive in terms of price when compared to printers based out of other metros. Similarly, the perennial dispute on the rate of tax for prints and fabricated items continues to cause problems for printers every now and then with tax authorities conducting rides, seizing books of accounts and freezing bank transactions. The printers have to spend considerable time and money to resolve these issues which again affects the day to day operations at large.
Need for a stronger association:
There is a need for a strong representative body for all the printers to speak out the problems with government authorities and industry bodies.
Conclusion:
Today, wide format printing industry is able to generate good, respectable, direct and indirect employment. But with all these problems, it is increasingly becoming difficult to run the business profitably, which is eroding the confidence of owners and material suppliers. Crippled by tax issues and bad debts, many printers are stretched beyond limits and they have no option but to close their operations. But post closure issues are even more frightening, as huge loans taken for machines and pending supplier payments could wipe out the net worth completely. Hence, they are clinging to the sinking boats trying to stay afloat
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