The effect of the adoption of emerging electronic payments options on improving working capital management and profitability of firms in India

Mahadevan Balakrishnan, Chief Operating Officer, National Payments Corporation of India

Abstract
The emergence of electronic payment (EP) options in India, their increasing coverage in terms of number of branches, options and pan-India availability and their phenomenal growth in the last few years are opening up a wonderful opportunity for Indian firms to improve/optimise working capital management (WCM), leading to an increase in the profitability and value. Many studies have shown that efficient WCM has a direct relationship with profitability of the firm. The emerging EP options (and non-EP options as well) help the firm: to improve (or rather reduce) the day’s sales outstanding (DSO) and quickly collect payment, thereby reducing the cash conversion cycle time — an important measure of how efficiently the working capital is managed; to allow timely disbursal of payments, to take advantage of early payment discounts; and to reduce the overall cost associated with these transactions, resulting in optimised working capital requirements and associated benefits. Indian firms can immediately shift to EP (if they have not already done so) and benefit. This article analyses the impact of efficient WCM on the profitability of firms, discusses the emerging EP options in India and their coverage and growth, and examines how they affect the various aspects of WCM in India — especially in accounts receivable, accounts payable and transaction costs.

Keywords
working capital management, profitability, liquidity, cash conversion cycle, emerging, electronic payments, India, cash management services

Mahadevan Balakrishnan is Chief Operating Officer with National Payments Corporation of India and manages business development, operations and technology with responsibility for delivering the NPCI’s vision of a simple, easy, convenient and cost-effective retail payment system for India. He has over 20 years of banking technology management experience with leading banks such as ABN AMRO Bank, Barclays, Citibank and DCB, and was involved in the implementation of some of the payments systems for these banks. He has a special interest in payment and remittance areas in banking. Academically, Balakrishnan has a Master’s in Business Administration (MBA) from Madras University in India and a Master’s in Bank Management (MBM) from Alagappa University in India, and is also pursuing a doctoral study in financial management with the Department of Management Studies, Madras University, Chennai, Tamilnadu, India as an external candidate. He has had articles related to payment systems published in national and international journals.

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