Short Story
46-year-old Sabahat is a dealer of commercial vehicle tyres and has his own trading company that he started 5 years back in Mumbai. Being in this industry for more than 16 years has added a lot of clarity to his vision of how to expand his business. He knows exactly what he wants when it comes to applying for loans to acquire customers. His goal is to shift to the retail business and open walk-in stores but currently, he doesn’t have that kind of a space where he could incorporate that.
(Note: This interview was executed in 2019, before COVID)
Business
- Sabahat had a total of 16 years of industry experience before setting up this business. He started this business because he realised that the scope of tyres is massive and dealers have a huge margin in this case.
- He spends most of his time on the field, collecting orders, meeting clients, etc. He feels the need to have a daily routine of going to the office every day instead of only spending a couple of hours there to manage various payments and making sure things are in place.
- He has alliances with various logistics companies that he sells tyres to.
A: How did you get the idea to start this business?
S: Even though I was working a job before this, I always wanted to do my own business. When I got into the tyre line, I did not know much about it. As time passed, I realized that the scope for this commodity is massive, even more than oil for that matter. In my previous job, I had to get business for the company. I realized I had the contacts and the necessary knowledge to do business rather than being bossed around and given ultimatums. Plus, dealers received hefty margins, and hence, this seemed lucrative.A: Do you have any storage facility for your inventory?
S: Currently, I don’t keep any physical stock at my workspace. Say, if a customer needs tyres, I find the nearest dealer in that area and have the tyres transported to the concerned location. This way, I tend to save overhead costs of holding the commodity and transportation costs. Mind you, my entire business runs on credit. So, I try to keep my overheads to the bare minimum. But, I have started keeping tyres for smaller vehicles like tempos or auto-rickshaws, for which a walk-in facility is available.
A: Is there any specific brand that you buy?
S: No. These tyres are a very expensive commodity. That is why I am in no position to push a specific brand. If a customer requires a specific brand, I will find the suppliers and get him his product. As long as his needs are fulfilled, he is satisfied. If I keep a specific brand and impose that sale on the customer, any faults with the product would reflect badly on my business and I might just lose out on a customer.A: Have you ever tried to find business online?
S: See, in this business, online platforms are not the best option to turn to. As I said, tyres are expensive, plus the pricing on online platforms is not very accurate. You end up losing more money than you should. Otherwise, my business runs completely on trust and goodwill. Also, the ticket size is such that negotiations do play a role which is not possible online.
Finance & Banking
- Sabahat has 2 bank accounts with private banks. He actively uses credit cards to make vendor payments as he does not want to delay their dues and keep them waiting. He also has a POS machine in his office to accept card payments.
- To keep track of payments, he writes the mode of payment behind the invoice so that it is easy to cross-check and keep track.
A: Do UPI/QR codes play a role in your business?
S: In our trade, there is no place where we would feel the need to use such methods to make payments. Firstly, the ticket size we deal in is slightly large and also, this would be a much viable method of payment if I was into the trade related to passenger vehicles.A: Do you use debit/credit cards to make any payments? Do you accept payments through the same modes?
S: Generally, no party would use cards to make or receive payments because of the extra 2% charged, which might eat into the profit margins of either party. But, now I have come to the realization that the 2% charge of making/receiving these payments would accrue in any case. So, I have started making payments through cards because I interact with vendors every day and wouldn’t want to delay their dues and keep them waiting. And we also have a POS terminal, through which we accept such payments.
Loans
- Sabahat generally borrows at least 5 Lakhs as anything lesser than this amount does not cover his costs as tyres are expensive.
- Due to so many years of experience in the industry and taking loans from various sources, Sabahat has a very straightforward approach when it comes to loans. He prefers taking short term loans so that he can pay it off within a period of 10 months. He compares interest rates before taking a loan but the most important factor for him is continuity of the association he has with the loan partner.
- He is not happy with the fact that he has to provide documents every time he takes a new loan from the same loan source.
A: Before you take a loan, what do you consider?
S: Before taking a loan, obviously I do compare interest rates and where I am sourcing the money from. But, the main thing I am looking for is a fair deal and continuity of the association I have with the loan partner. Of course, it would be silly of me to expect an interest rate lower than 1.5% because these are unsecured loans. But, if I feel that the interest rate or the charges are exorbitant, I will pull out. The biggest concern I have is the continuity of the relationship. Firstly, your company has spent an amount to acquire a customer like me, so why should you lose a customer to a competitor for absolutely no cost? I should not be forced to go out looking for other sources when I already should have one, with whom I have a constant business. At the end of the day, my business is growing and the least you could do is to offer me top-ups or more loans to reap its benefits. Also, I am looking for shorter-term loans because if I have the ability to pay off the amount, then why not close a certain loan and start a new one?A: How can the loan process be improved?
S: I feel, the main thing is the security of business relations I can have with you. Rather, the reassurance of the continuity. I am a businessman who is looking to expand and grow the business. I am not interested in taking loans of small amounts because it will not help my cause. Once I work with a loan partner, I should not have the worry to find more sources of borrowing unless my business model is too risky or if I am a defaulter. Plus, the documentation bit is quite a lengthy process and it is mandatory of course. But, if I have already provided documents in my earlier loan, why should you ask me for them again? It’s just a waste of time and money. Also, I think to maintain relations between two businesses, one needs to add a personal touch. Today, I don’t mind paying a percent extra because at least the loan partner has maintained a certain relation with their customer, which goes beyond the transactional aspect of it.A: Here are three dummy loan products. Do you think there is something in it that could help you with your loan requirements?
1. 100 Day Loan
2. Line of Credit
3. Term Loan
S: As a business that wants to grow and as a businessman who has done a Ph.D. in loans, I keep track of where I can get a loan from at a fair deal. These products are of no use to me. This is only because of the exorbitant interest rates and the small ticket size of these borrowings. I feel this would cater more to small businesses that have a tough time rotating that cash flows. As I said, I just need the funds to acquire customers, close that loan and start a fresh one to acquire another customer. I need good cash at a fair price, for short durations and the viability to raise another loan once I close the active ones. Therefore, none of these products would help me anywhere.
Bills & Payments
- Major monthly expenses incurred by Sabahat include electricity bill, employee salary and office rent which. add up to Rs. 30,000.
- All these payments are done through online banking mode which helps him in recording certain expenditures, which are later added to the expenditures by the CA.
A: Do you have a credit cycle with your vendors?
S: When it comes to making payments to my vendors, I usually get a 50 day credit period, within which I need to clear my dues. Also, I provide my customers with a 75–80-day credit cycle.A: How do you make your payments to vendors/accept payments from customers?
S: All the payments that I make are through cheques or NEFT/RTGS services. Even the payments I receive are generally through online banking services. Cash is a very rare phenomenon in my business.A: Do you ever borrow money to pay for your office expenditures?
S: Yes, I do keep borrowing small amounts to fulfill upcoming obligations. Since the EMIs need and salaries need to be paid at that instant, I borrow small amounts from personal sources like friends or family. It doesn’t make sense for me to go to an organized set up for such loans because I can pay them back in a matter of days.
Accounting & Taxation
Sabahat has a billing system at work to keep track of income and expenses. Though he has Tally installed in his office computer, he doesn’t use it actively as his expenses are very negligible and it is mostly inward cash flow that needs to be taken care of.
Business Goals
In the coming years, Sabahat wants to start 4 retail outlets in and around the city that would sell small vehicle tyres as well as passenger vehicle tyres. He would need a heavy investment for this but he is content knowing that the rotation of cash flow in his business is much faster.
A: Do you think the business has changed?
S: No, the business hasn’t changed really. The only thing that has changed is the credit cycle, which has increased. Even though the business is fine and orders are coming in, there is a big cash crunch in the market.A: If you had access to greater working capital, which aspect of the business would you focus on?
S: As I said earlier, I would obviously use this capital to acquire more customers. Also, I am constantly working on the customers I am engaging with, if they are fine to work with. Secondly, I am making sure where the money is going to be flowing in from, rather who my financiers are. Lastly, I have a constant focus on how this business is going to grow and where will I get more work from.
Credits:
- Interviewed and transcribed: Ansh Chawla & Rahul Jaiswal, Flexiloans
- Analyzed and published for Medium: Geetika Shukla
About the research
This documentation is a result of the in-person interview, along with the participants’ consent. The interviews might be conducted in their native languages and translated to English in the best possible way to reach a large audience.
Disclaimer: The identities of people and places in this documentation have been changed to honour the privacy of the participants.
Read our research series
About D91 labs
This research was executed and documented by D91 labs. D91 labs is an open-source initiative by setu.co to help Bharat build great fintech products. We organize and publish user research, insights, and frameworks for fintech in India. Please follow us on medium for more exciting stories and insights on Bharat.
Psst! We are looking for collaborators and contributors to D91 labs. If you are interested, please drop your details here, and we will reach out to you.
