Lending working capital without meaning to

Two businesses at one counter

Walk-in customers pay cash and leave. Contractors take goods on credit, in small amounts, several times a week, and pay when the site they are working on pays them. Those are not variations of the same transaction. The second one is lending.

A shop with fifteen trade accounts running an average of ₹50,000 each has ₹7.5 lakh of working capital sitting in other people's businesses. Most owners in that position could not state the figure within ₹2 lakh if asked without warning.

Where the notebook fails

The notebook is not wrong. It is usually accurate and often neater than what replaces it. It fails in one specific circumstance: when a contractor disputes a line from six weeks ago.

At that point the shop has a handwritten entry with a date and an amount, and the contractor has a recollection. Neither can prove anything about what was actually collected, by whom, or at what rate. These arguments are usually settled by the shop conceding, because the relationship is worth more than the amount, and that concession is a real cost nobody records.

Knowing does not collect

Worth saying plainly. Knowing precisely that a contractor is eleven weeks overdue does not make them pay, and a hardware shop will often decide not to press, because that contractor brings in steady business and the site he is waiting on is genuinely slow.

What changes is that the decision is made deliberately with a number attached, instead of being discovered at the point where the shop cannot pay its own supplier. The argument about the amount also disappears, which is worth more than it sounds.

One thing to get right at the start

Opening balances have to be agreed with each contractor, not carried over from the notebook and assumed. Every hardware shop that has done this has found at least one account where the two sides disagreed, and it is far better to have that conversation on day one, framed as tidying up, than six months later when it looks like an accusation.