In today’s world, monetary, financial and credit-related matters have become a part and parcel of our life. Maintaining a good financial record and a reguler repayment schedule is of great significance. Similarly, keeping a track of your tax payments and understanding the importance of the terms like Form 16 and ITR would go a long way in the emergence of a sound financial discipline. For businessmen, importance of Financial Statements viz Balance Sheet, P&L statement, etc cannot be overemphasized. So, being an individual or a businessman, if you do not know any of these terms, this writeup is for you.
While dealing with a bank, a reguler schedule of repayment must be maintained. If you have borrowed money from a bank, ensure that no instalments are skipped. This usually happens due to the ignorance of what aftereffects may arise out of such an irreguler repayment. For example, throughout the course of my work in Loans & Advances, I have observed that our salaried class, who receive their salaries in their Salary Accounts maintained with J&K Bank, and are indebted to their bank, often miss EMIs (Equated Monthly Instalments). This happens mainly due to the reason that their salary disbursing agencies often delay the salary credit. Now, this is a problem. When regular instalments do not get credited in one’s Loan Account, it gets recorder in that person’s financial history. When such a person approaches a bank for some financial assistance later on, he is denied the same because his financial record is full of such blemishes. Now, a question arises: if skipping an EMI is so detrimental for the customer and worrisome for the bank, why doesn’t the banker ask such people to pay their monthly instalments? The reason is that the banker to our state-govt employees doesn’t have to worry because they know that their salary is going to get credited in their Savings Accounts, no matter when! This happens at the cost of deterioration of the financial record of gullible salaried people of our state who even do not know about this. It is the responsibility of a banker to educate a borrower and explain the importance of reguler repayment.
It may be worth knowing that there are a number of agencies that are always busy in recording each and every financial activity of a person. For example, CIBIL (Credit Information Bureau of India Ltd) is the most commonly known Credit Information Company. You may have heard of CIBIL Score; for a Banker, it is one of the basis of arriving at an informed financial decision regarding a customer’s loan request. This Score gets badly affected by irreguler repayments and gets tremendously improved by reguler and timely repayments. If those gullible individuals, about whom I wrote in the beginning of this writeup, approach a bank or a financial institution, they get disappointed due to a low CIBIL score and keep wandering as to why they were never educated about the same.
Similarly, keeping a check on your deductions would come handy in the long run. Filing ITRs (Income Tax Returns) every year are helpful in getting quick financial sanctions. An ITR is a simple document that contains the details of one’s income, the source of such income and how much tax has been paid on such an income (if the income falls under a tax slab). It can be filed on the website of the Dept of Income Tax or, if you are not comfortable with the use of a computer and internet, you can get it filed from a financial document service provider. Always keep a copy of each year’s ITR handy. Although, you can use your Form 16 in place of an ITR for obtaining financial sanctions, however, an ITR is a better and quick alternative. Form 16, on the other hand, is a document provided by one’s HR Department or one’s salary disbursing office that contains the details of your salary, deductions, tax, etc.
Importance of maintaining a sound financial record and maintenance of financial documents and statements becomes all the more important for businessmen. Remember, according to the principles of Accounting, your business concern and you are two different entities; you need to maintain a separate identity of your business. The role of various financial statements is vast. A banker determines the limit of the Working Capital Finance, that may be sanctioned in favour of a business, on the basis of such authentic financial statements. These are Balance Sheet, Profit and Loss Account, etc, etc. They are simply a record of your business in terms of the annual sales, profit earned, liabilities, assets, etc, etc. You need these statements everywhere.
Similarly, businessmen should understand their financial relationship with banks and other financial institutions. Depositing sales in a Cash Credit Account in reguler intervals, maintaing proper record of the movement of Stock, Creditors and Debtors, etc are some of the most important exercises that should invariably be carried out by every businessman. This is always in your favour.
Post Script: Banking and Business are very closely related to each other. Both of them are interrelated and interdependent. They are each other’s life-blood. Financial Literacy must be given utmost importance. Individuals and Businessmen must talk at length with their Bankers and understand their financial dealings deeply.
(Author is Officer Scale I in a leading PSU Bank. The views are personal and do not represent the organisation he works for.)