Sei sulla pagina 1di 2

Difference Between Sec 195 and Sec 194LC

Relevance of Operating Cycle in Buyers Credit Transaction


Posted on May 14, 2014 by Sanjay Mandaia
!o "ai# B$yer%s & S$''#ier%s Credit( )( sanjay*andaia+,*ai#-co*, M( .919/255001/0
1ncase of raw *ateria# i*'orts, 2B1 3ad de#e,ated a''roin, 'owers to "$t3orised Dea#ers
4Ban5s6 for !rade Credit 4B$yers Credit & S$''#iers Credit6 for a ten$re $'to 1 year fro* t3e date
of s3i'*ent- Ban5%s based on interna# 'o#icies decided c$sto*erwise ten$re- Beca$se of
ariation in 'o#icies between ban5s, few i*'orters $sed b$yers credit for arbitra,e-
2B1 Master Circ$#ar )7terna# Co**ercia# Borrowin, and !rade Credit
AD banks are permitted to a''roe trade credits for i*'orts into 1ndia $' to 8SD 20 *i##ion
'er i*'ort transaction for i*'orts 'er*issib#e $nder t3e c$rrent 9orei,n !rade Po#icy of t3e
D:9! wit3 a *at$rity 'eriod up to one year (from the date of shipment)-
;n 11t3 <$#y 201=, 2B1 reised t3e 'o#icy by #in5in, !rade Credit to ;'eratin, Cyc#e-
1t 3as a#so been decided t3at for aai#*ent of trade credit, t3e 'eriod of trade credit s3o$#d be
#in5ed to t3e operating cycle and trade transaction-
hat is Operating Cycle !
1n si*'#e ter*s o'eratin, cyc#e is 'eriod for w3ic3 f$nds are b#oc5ed in b$siness- )ery b$siness
transaction 'asses t3ro$,3 a ;'eratin, Cyc#e> fro* initia# cas3 > to Credit P$rc3ase of raw
*ateria# ? to Man$fact$rin, Process > to Credit Sa#es to C$sto*er > to 2ea#isation of Boo5
Debts > to 'ay*ent to creditors? and a,ain in Cas3
B$siness owner fi## t3is ,a' by $sin, t3eir own f$nds and ban5s f$nds by way of 9$nd Based and
@on 9$nd based #i*its-
"o# to Calculate Operating Cycle ($et Operating Cycle)
@et ;'eratin, Cyc#e A Days Stoc5 Be#d 416 . Days Sa#es ;$tstandin, 426 > Days Payab#e
;$tstandin, 4=6
416 Days Stoc5 Be#d A 4"era,e Stoc5 C =056 & Cost of :oods So#d
"- "era,e Stoc5 A 4;'enin, Stoc5 . C#osin, Stoc56 & 2
B- Cost of :oods So#d A ;'enin, Stoc5 . P$rc3ases > C#osin, Stoc5
426 Days Sa#es ;$tstandin, A 4Debtors C =056 & Sa#es
4=6 Days Payab#es ;$tstandin, A 4Creditors C =056 & Cost of :oods So#d
"o# #ill Bank %mplement
"t t3e ti*e of sanctionin, of fres3 #i*its or renewa# of e7istin, #i*its, ban5s wi## 3ae to define
;'eratin, Cyc#e of eery i*'orter and based on sanction ten$re, i*'orter wi## be ab#e to ta5e
b$yers credit-
%mpact of the &olicy
1- B$yers Credit beyond ;'eratin, Cyc#e 3as sto''ed-
2- 2o##oer of B$yers Credit beyond ;'eratin, Cyc#e 3as sto''ed- !3is is 3ain, ne,atie
i*'act of ,en$ine i*'orts w3ose o'eratin, cyc#e 3as ,one $' beca$se of econo*ic
downt$rn-
=- 9ew i*'orters w3o were $sin, B$yers Credit for "rbitra,e 3as sto''ed-
Reference
"rtic#e( Period of B$yers Credit Lin5ed to ;'eratin, Cyc#e
2B1 Circ$#ar 2eiewin, "## in Cost cei#in, and !en$re of !rade Credit( Dated' (()*+)
,*(-
2B1 Master Circ$#ar on )7terna# Co**ercia# Borrowin, 4)CB6 and !rade
Credit( Dated' *()*+),*(-