The recent arrest of Yogendra Vasupal, the CEO of Chennai-based start-up Stayzilla, has brought the issue of non-payment of dues by many start-ups to its distributors, advertising agencies and suppliers to the fore-front.
Late on Tuesday, Vasupal, was arrested by the Chennai police, on fraud charges basis a complaint filed by advertising firm Jigsaw Solutions. Stayzilla, a home-stay aggregator, had shut down its operations last month. While many start-ups have rallied up against the arrest of Vasupal, they too face similar problems and have payment issues with their distributors and suppliers.
This is not something faced only by start-ups but by larger enterprises, too. “Many of the start-ups in India try to play around with distributors' money and try to delay the payments. Many of them, of course, cannot delay their employee salaries but they try to delay the payments to distributors and suppliers and delay their payments,” said Alok Shende of Mumbai-based Ascentius Consulting.
According to him, many large enterprises, too, like to age their payments and hold onto the cash for longer periods to gain in on the interest on the cash holding. “However, with this (Stayzilla) case coming into picture there is a possibility that it will encourage other distributors and suppliers to file more cases against other such start-ups and companies who default on payments. It also highlights the problem of revenue and cost and the cash crunch and liquidity crisis in many of these start-ups,” Shende told THE WEEK.
Kris Lakshmikanth, founder of recruitment firm Head Hunters India Limited, feels that the advertising firm Jigsaw Advertising, which filed the case against Vasupal, appears to have a strong nexus with the police and the higher authorities which, in turn, facilitated the arrest. “Many of the e-commerce and the start-up biggies have come out against the arrest because they also fear that many of them may be arrested for the same charge in the future as they, too, have defaulted on payments to multiple distributors,” he said. “Ideally, the payment should be made in a matter of 30 days but some distributors have not been paid for more than six months or so. As far as what I have tracked, only Amazon India pays timely to its distributors and most of the other players default.”
Lakshmikanth believes that Vasupal will be released eventually and a settlement will be reached between the two companies where at least a partial payment will be made.
However, he anticipates many distributors and suppliers to come out openly and file cases against e-commerce companies and start-ups in the future. “Getting payment is not easy. Often, many of the civil cases hang for more than 5-10 years. Eventually, the distributor gets only a handful of the money which is due from the e-commerce company or the start up,” adds Lakshmikanth.
