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IT firms face delay in payments from foreign clients

Mumbai: Indian outsourcing companies are facing difficulties as their foreign clients are delaying their payments. The firms are finding it hard to recover their money, as most of these firms are from the U.S. and Europe, which are largely hit by the recession, the Business Standard reports.

Except Infosys, all the major Indian IT firms have shown a rise in the receivable income from the last three quarters.

Some of these accrued incomes may get registered in the bad debts, as that may have to be written off in case the client goes bankrupt or does not make payment in any case. This effect can be seen in the books of the top three IT firms like TCS, Infosys and Wipro, which is creating the provision of bad debts in the books.

"In an economic downturn, clearly there would be pressures on account receivables. There is also the risk that if a company declares bankruptcy, the entire accounts receivable becomes doubtful. Realizing this, we focused on account receivable collections in the last six months," said S Gopalakrishnan, CEO and MD, Infosys Technologies.

The doubtful accounts have shown a steep rise in three quarters for Infosys. The accounts showed Rs. 55 Crore in June 2008 to Rs.88 crore in September 2008.

For TCS, the doubtful debts have jumped to Rs 155 crore from Rs 111 crore in the same two periods. "These are related to certain client-specific events, and provisions that we have made with respect to 2-3 clients," said V Ramakrishnan, TCS vice-president Finance.

Along with this, for Wipro, doubtful debts have gone up from Rs 123 crore in June 2008 quarter to Rs 192 crore in March 2009 quarter.

"This increase was on account of a large existing customer filing for bankruptcy. Our outstanding as on the date of filing is subject to bankruptcy proceedings. We continue to work with the customer post filing," said Manish Dugar, CFO, Wipro Technologies.

However, a brokerage firm CLSA has warned that the problem of increasing amount of the receivable income will be on rise as the reason of increased cases of compromises by Indian companies to lock-in volumes and relaxed credit terms in new and re-negotiated deals. The investors will need to keep a watch on the situation in the coming quarters as the operating cash flow might get blocked for the IT firms.

Source:
http://www.siliconindia.com/shownews/IT_firms_face_delay_in_payments_from_foreig

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