How I Run a Rice Mill's Cash Credit Account: Drawing Power and Seasons

Why an inventory-heavy rice mill needs working capital in the first place

Sudha Rice & Seeds is our family's rice-milling, paddy-trading and seed-processing business. It began as my father's business. I grew up around it, around the paddy yards and the seasonal rush of procurement, before taking on direct, personal responsibility for its operations: working capital, borrowing, stock and collections. That responsibility began when the rice mill started in 2018; before that, I sat at the family's pesticides shop. This article is my own account of managing that side of the business, specifically the Cash Credit facility that finances it. It carries the privacy limits I think any account like this should: no bank name, no account numbers, no borrowing amounts, no customer or supplier names, no property or sanction-letter detail, and no invented drama. What follows is what I learned, not a dressed-up version of it.

A rice mill's core problem is timing. You cannot buy paddy in small amounts spread evenly across the year. A large share of the annual requirement arrives in a compressed harvest window, and if you are not there to buy it then, at the prevailing price, you do not get another chance until the next season. That means paying farmers and suppliers for a large volume of raw material well before you have milled, packed and sold the rice, and the same seasonal logic applies to seed procurement and processing. The gap between that outlay and the cash coming back from sales over the following months is exactly what working-capital finance exists to bridge. The business itself started on our family's own capital, and took the cash credit later.

The operating cycle as I lived it

• Purchasing paddy or seed during the procurement window, often needing to move on volume and price quickly.
• Paying suppliers and farmers, frequently on tighter terms than we could offer our own customers downstream.
• Storage, with real carrying cost and real risk: spoilage, pest damage, and the insurance questions covered in the companion guide on insurance for a cash credit limit.
• Processing: milling paddy into rice, bran, husk and broken rice; grading and cleaning seed.
• Packaging, timed to dispatch schedules and, for seed, to the sowing-season calendar.
• Dispatch to wholesalers, distributors and other buyers.
• Credit sales: much of our output moved on credit terms, not cash on delivery.
• Waiting for customer payment, which closes the cycle and frees up cash (and drawing power) for the next round.

Every stage in that list ties up cash for a while. The CC facility exists to fund the business through the whole sequence, over and over, season after season.

Why accounting profit and available cash are not the same thing

A season can look profitable on paper, with good milling yield, decent rice prices and healthy byproduct income from bran and husk, and still be cash-tight, because much of that "profit" sits in unsold stock or in receivables from customers who have not paid yet. I learned to stop reading the P&L as a cash statement. The two tell you different things: the P&L tells you whether the business as a whole is fundamentally sound; your bank balance and your drawing power tell you whether you can pay this week's supplier bill. Both matter, and confusing one for the other is an easy way to be caught short even in a good year. Our worst cash squeeze so far ran from 2021 to 2023, from the impact of Covid.

What the sanctioned limit meant, day to day

I want to be precise about what the sanctioned limit did and did not mean day to day. It was the ceiling the bank had agreed to in principle, reviewed and renewed, typically once a year, against our financials and account conduct. It was not money sitting ready to draw whenever we wanted. What we could draw depended on drawing power, recalculated from our monthly stock statement, and it moved with the season: highest in the weeks just after paddy procurement, when stock value was at its peak, and lower as that stock was milled, sold and turned back into cash over the following months.

Sanctioned limit versus usable drawing power: the gap that mattered most

The gap between the sanctioned limit and our actual, month-to-month drawing power is, in my experience, the most important operational reality of running a cash credit facility. There were months when our usable drawing power sat well below the sanctioned ceiling, not because anything was wrong, but because stock had sold down and had not yet been replenished by the next procurement cycle. September is the hardest of those months: last season's stock has been sold, the money has gone out to farmers as advances, and the account is stretched until the new paddy arrives, at the end of September or in the first week of October. Planning cash flow around the sanctioned number instead of current drawing power is, in my view, the most common and most avoidable mistake a business in our position can make. How that number is actually worked out is covered in the guide to stock statements and drawing power.

Daily utilisation and interest discipline

Interest accrues on the daily outstanding balance, not on the sanctioned limit, so how the account was run day to day mattered to our cost of borrowing. That meant drawing only what the week's supplier payments and wage obligations needed, and applying customer collections against the outstanding balance promptly, rather than letting cash sit idle in a current account while the CC balance stayed higher than it had to be. It is a small, unglamorous discipline, and one of the few things about the facility entirely within our control, every day. The interest itself has not always been paid on time. More than once it went unpaid past month-end and our rating dropped, and getting the rating back took real effort.

Seasonal stock peaks

The paddy-procurement season was the period of highest utilisation and closest attention every year: the largest stock position of the year, the largest draw on the facility, and the time when accurate, current stock statements mattered most, because drawing power had to reflect the season's real stock position to support the borrowing the season required. Treating that peak as a predictable, planned-for event, rather than a surprise each year, made the whole cycle much easier to manage.

What the weekly accountant did

Our accountant came in roughly once a week and handled the operating rhythm of the books: voucher entry, purchase and sales records, bank reconciliation, ledgers, reconciling stock movement against the accounts, tracking receivables and payables, keeping GST working records current, and preparing the information behind our periodic bank reviews and stock statements. Done consistently, that work meant our books were never far out of date, and our monthly stock statement to the bank was built on real, current numbers rather than reconstructed under deadline pressure.

What the Chartered Accountant did, as a separate role

Our Chartered Accountant's role was distinct. It was not the same job as the weekly accountant's, and the CA's involvement never meant the CA guaranteed any outcome with the bank. The CA's work covered finalising the financial statements, tax and audit work where applicable, review of accounting classifications and provisions, CMA data or projections where a submission required them, and coordination during the annual renewal, so that our financial position was presented accurately and in the format the bank needed. Where certification was legally and factually applicable, it came from the CA in that professional capacity. I never asked for, or received, a certificate as a guarantee of sanction, renewal or any specific outcome. A CA's work supports a strong renewal case; it does not and cannot promise one.

What the paperwork cannot see

Our accountant, our CA and our bank only ever measure the figures on paper. What actually went into the godown, we know ourselves. Good professional support can organise, verify and present a business's numbers well. It cannot manufacture accuracy that was never there at the source, and in my view it was never reasonable to expect it to.

Stock, bank, GST, receivables and payables: the discipline underneath

None of the above works without the unglamorous, repeated discipline of reconciliation: the godown register against the accounting stock ledger, our bank statement against our own cash book, our GST returns against actual sales and purchases, and our receivables and payables ageing against what customers and suppliers would confirm if asked. This is not a one-time task done for the bank's benefit at renewal. Done continuously, it makes renewal, stock audits and ordinary decisions inside the business much easier.

Preparing for renewal

Our renewal preparation followed the same 60-90-day rhythm described in the guide to renewal, enhancement and NPA risk: closing out the latest financial data, making sure stock and debtor/creditor statements were current and reconciled, and bringing our CA in early enough for CMA data or projections to be done properly rather than rushed. The years this went smoothly were, without exception, the years when nothing about our books, stock or bank data had to be reconstructed or explained under time pressure. The story was already consistent, because we had kept it that way all year.

Mistakes I watched other business owners make, and worked to avoid myself

• Treating the CC limit as profit: spending against the sanctioned ceiling as though it were the business's own money rather than a facility to be repaid.
• Using working capital for personal spending: blurring business and personal finances is a fast way to lose track of what the business can actually afford. This is the one we did not always manage: our business and household money were mixed until 2023, and only then did we separate them.
• Funding fixed assets through CC: a mistake the comparison of cash credit, overdraft and term loans covers directly, and one we never faced, because the mill and its machinery were paid for in cash.
• Ignoring receivables: letting collections drift because sales, not collections, feel like the more exciting part of the business.
• Inflating stock on statements to support more drawing power than the business really had.
• Delaying the books until a bank submission needs them, instead of keeping them current as routine practice.
• Depending on annual accounts alone, without the month-to-month stock and cash-flow view that actually runs a seasonal business.

What I would monitor every week, if I were starting again

Current drawing power against the sanctioned limit; the age profile of outstanding receivables; whether stock statements are prepared from real, current records rather than estimates; the daily outstanding CC balance against what the week's obligations actually require; and whether the books, the stock and the bank data have started to drift out of step with each other. None of this is complicated. All of it is easy to let slip when the business is busy, which in a seasonal operation is most of the time.

Lessons for another rice mill, seed business or trading operation

Know your drawing power, not just your sanctioned limit, and plan around the smaller of the two. Build your seasonal peak into your planning as an expected, recurring event, not a surprise. Keep weekly bookkeeping and periodic CA-level work as separate, well-defined roles, and never expect either to substitute for your own oversight of the business's real numbers. Treat any additional borrowing as a deliberate decision with a clear purpose, not a convenience. And prepare for renewal as a real, recurring event that starts months in advance, not a formality that happens because it went smoothly last year.

The principle I'd want another business owner to take from this

Credit can support a good operating cycle, but it cannot replace margin, collections and financial discipline. Our cash credit facility, like any facility of any size, only ever bought us time and smoothed a real timing gap between paying for stock and collecting from customers. It never once did the work of running the business well. That part was always, and only ever, ours to do.

A season, roughly, from the inside

It is easier to describe the rhythm than any single number. Procurement opens, and for several weeks the priority is simple: be present at the right places with the right funds ready, because paddy and seed bought late or bought hesitantly is bought at a worse price, if it is available to buy at all. Through that window, drawing power climbs as stock climbs, and utilisation is at its highest of the year.

Once procurement tapers, the work shifts to milling, grading, processing and packaging, and the financial picture shifts with it: stock converts from raw material into finished goods, finished goods convert into cash sales or receivables, and drawing power comes back down as that conversion happens, month over month, until the next procurement window opens and the cycle repeats. Nothing about that rhythm is unique to us; it is the shape of nearly every seasonal, inventory-heavy business. Seeing it as a rhythm rather than a series of surprises is, in hindsight, most of what made the facility manageable.