OBJECTIVE

To explore a range of issues in working capital management with a primary focus on accounts receivable
and inventory and to examine some of the challenges in financial (and general) management of firms in
developing countries. The Zonal manager at Excel Crop Care Ltd just wanted to understand the impact of
bringing down the components of the working capital cycle to the level of competition.

REPORT
Excel Industries Limited, ECCLs founding company, started off in a Kitchen laboratory in 1941. In 2003
Excel Industries spun off the Agriculture business unit into Excel Crop Care Ltd, one of India's leading
producers of agricultural chemicals (mainly pesticides, fertilizer and seeds as well )

Features of PAC IndustryThe Global Market for Pesticides- The global market for chemical pesticides/agrochemicals was
estimated at around US$26.71 billion in 2003. The markets for chemical pesticides had undergone rapid
changes over the last decade. Overall pesticide used worldwide over the last decade had remained
constant or declined. The reduction could be explained partly by changing crop prices, greater efficiency
of pesticide use as a result of improvements in pest management practices and technology, increased
adoption of genetically modified (GM) crops, and IPM techniques aimed at both improving pest
management practices, and in some cases targeting a reduction in pesticide use.
The Domestic Market- Indian companies had focused on marketing generic and off patent products,
whereas the MNCs had focused on high-end specialty products. Indian companies focused on applied
research, which included developing processes to manufacture off-patent products, more effective
methods of delivering existing products, and new formulations (or combinations) of generic products.
They generally did not have the financial and technical resources for undertaking basic research.
Cyclical Nature of Demand- The demand for PAC in India was seasonal & cyclical as it largely
depended on agricultural production which was in turn dependent on rainfall. PAC demand was skewed in
favor of kharif crops i.e. during July- November. The peak consumption of PAC was during JulyNovember. Due to the seasonal nature of the business, PAC companies had to build up inventory in
advance of the season by making assumptions about the monsoon and crop acreage situation.
Export Market- Long-term trend of declining demand, the PAC industry in India had resorted to
increased exports primarily to US, Argentina, France, Brazil, and Netherlands for better capacity
utilization. The export market often provided a cushion to the vagaries of the domestic market. India was
the second-largest exporter of pesticides, behind China and accounted for 3% of the world export of
pesticides in 2003, as compared with 5.9% for China.
Regulation- The PAC industry was highly sensitive to Governments policies. The industry was regulated
by two ministries:

Department of Chemicals and Petrochemicals under Ministry of Chemicals and Fertilizers -production

of pesticides
Ministry of Agriculture -quality and supply of pesticides.

The PAC Industry developed in India because of the GOIs policies of self reliance and protection of domestic
industry. Because of increased self-reliance in PAC production, GOI reduced custom duties on imports of PAC.

ECCLS WORKING CAPITAL MANAGEMENT

Due to the seasonal nature of this industry, ECCL sold mainly on credit (about 90%).
Although sales of agri-inputs like fertilizer and seed was on cash, sale of pesticides was mainly on credit.
Credit period- credit was extended for 90 days but in practice got extended to 120/180 days.
Credit Granting Criteria

New customers- Maximum credit period fixed as 90 days and no further dealings if the outstanding

amount went beyond 90 days.

Minimum 2 years of business with ECCL- The longer the debtor had a good business relation with
ECCL the more liberal did the credit terms become towards those debtors. In case of new debtors, the
credit terms were comparatively strict due to lack of business dealing experience of the company with

them.
Type of business- Most of the dealers with ECCL dealt not only in pesticide but in fertilizer and seeds
as well. Dealers who were also in the business of fertilizer and seeds were offered a comparatively
liberal credit period. These dealers were relatively regular in payment since the business of fertilizer
and seed was mainly on cash unlike pesticides. Whereas if a dealer was restricted to a business purely

of pesticides, payment is often un-timely. A lot of such cases even result in bad debts.
Payment performance- The mode of payment was mainly by cheque and dishonoured cheques

indicated bad dealer performance.

Type of collateral and security extended- Amount extended as credit also depended on the security
or collateral extended by the dealer. More the collateral greater was the credit limit.

Control of Receivables

Monthly monitoring Ageing schedule: The Company generate this schedule every month in all
the four zones which includes list of all the dealers with outstanding amounts arranged in different
slots:

90 days,
120 days,
180 days and
Bad debts going above 180 days.

This report helped track the dealers likely to become bad debts on a monthly basis.

Sending reminders to debtors at the end of credit period: Debtors were followed up regularly
once the credit period ended. As the outstanding amount kept on ageing, the collection process
was made more aggressive. In case of debts going bad (going beyond 180 days) threats of legal

action was sent to the debtors. In appropriate cases legal actions on overdue account were
exercised.
Inventory Control
Since the business was seasonal and sales were dependent on monsoons, therefore demand was very
erratic. Demand was forecasted at the beginning of each year- month-wise, pack-wise, product-wise for
the entire year based on the previous years performance zone wise. On the 20th of each month a rolling
plan for that particular month is generated which gave the current status of requirement. Stock requisition
plan was sent at the beginning of every month to the main go down, from where the stock was transferred
to the zonal go-down.
Cash Management

Manage all its expenses and receipts through a single Cash Credit Account with Bank of India, the

main operating account

The Company adopted a Hub and Spoke approach for its cash management system. For this purpose
the company utilized the services of Citibank to provide with Cash Management Service (CMS).
Under CMS, the bank collected cheques on a daily basis and gave credit for the same immediately or

on the next day, depending upon the bank location where the cheques had been drawn upon.
No cash was maintained by the company at any of its zonal offices and all the collections were

transmitted to the head Office.

The cash requirement of its zonal offices was met by the head office by transferring cash to their

account as and when they were in need of funds.

The company maintained adequate check on all its cash expenses by allowing cash payments only
against proper vouchers signed and sanctioned by the required authority. Moreover, all cash payments

in excess of Rs.5000/- was made only against vouchers with a revenue stamp on it.
The company or any of its zonal offices followed the system of preparation of cash budget for a

particular period.
Each zonal office prepared a quarterly MIS report that give details of the cash and bank balances at
each of its zonal offices as well as the details of the cheques in process over various periods, say, 030 days, 30-60 days and 60 days & above.