“Effect of credit policies on working capital efficiency of msmes: A secondary data analysis”

AbstractEfficient receivable management is essential for the financial stability of Micro, Small, and Medium Enterprises (MSMEs), particularly as they often struggle to secure external funding. The way an enterprise designs its credit policy whether lenient or strict directly affects working capital efficiency by influencing the timing and reliability of cash inflows. This research, drawing on secondary data, investigates how credit policies shape the working capital performance of Indian MSMEs. Information was gathered from official publications such as RBI reports, Ministry of MSME annual documents, and financial databases to track patterns in receivable turnover, collection periods, and liquidity. The findings reveal that liberal credit terms can encourage higher sales but frequently result in payment delays and cash flow challenges. Conversely, tighter credit norms improve liquidity and reduce risks but can restrict opportunities for growth. The study emphasizes the balancing act between revenue expansion and liquidity control, providing insights that can help entrepreneurs, lenders, and policymakers frame more effective credit practices that strengthen both profitability and sustainability.