Cash discipline in a capital-equipment business - notes from a long down-cycle
A press is a six-figure asset. The buyer pays in instalments, the supplier pays in advance, and the difference is working capital. How a small plant in Rajkot stays cash-positive through every down-cycle.
A hydraulic press is a six-figure asset. The buyer typically pays thirty percent on order, forty percent before dispatch and thirty percent after commissioning. The manufacturer pays the steel mill on day one, the fabricator on day ten and the hydraulics vendor on day thirty. The gap between those two schedules is the working capital cycle - and the size of that gap, multiplied across every open order, is what decides whether the plant gets through the next down-cycle.
Three rules that survived every down-cycle
First - receivables tighter than payables. We do not ship a machine without the dispatch instalment cleared. The thirty percent after commissioning is real, not notional - we follow up at days three, seven and fourteen. A receivable that ages past forty-five days is a receivable that ages past ninety days, and that is the start of a bad cycle.
Second - capex out of accruals, not out of debt. Every loom replacement, every new test stand, every additional bay, comes out of internal cash. Debt is a useful tool for an inventory build before a known order; it is a dangerous tool for a capacity expansion on an unknown order book.
Third - one season of fixed costs in the bank, always. A press manufacturer can lose its top five customers in the same year - it happens once a decade, but it happens. A plant with three months of fixed costs in the bank has time to find five new customers. A plant without it has six weeks before the lights go off.
The advantage of being small
Large machine-tool builders have working capital lines, banker relationships and treasury teams. Small ones have promoters who know what is in the bank at five every evening. That awareness is an advantage, not a disadvantage. The promoter who knows the cash position cannot make a bad capacity decision in the morning because the steel was overpriced and the order book was thinning.
The cash discipline of a small Indian capital-equipment business is not a finance subject. It is an operating subject. The decisions that protect the cash are made on the shop floor, in the purchase office, in the customer's accounts department - not in the CFO's spreadsheet.
This essay is an in-house first draft, prepared for Mr. Balvant Hirpara's review. It expresses general operating opinions on themes within his domain, but no specific event, customer, year or biographical claim has been verified. To be edited, signed off, or replaced before publication.
Got a question on what you have just read - or on hydraulic presses, sheet-metal forming or the Rajkot engineering ecosystem? Write directly to the office.
First-generation Indian industrialist. Promoter and Director of Omkar Machine Tools Pvt. Ltd. (est. 2011), an ISO 9001:2015 hydraulic press manufacturer in Ribda, Gondal, Rajkot.