Running a Small Factory in Nepal: Power, Raw Material, VAT

A small manufacturer in Nepal has problems that textbooks do not mention. Power may drop in the middle of a batch. A container of raw material may be held at the border for weeks. Customers buy on credit and pay late. Tax paperwork must be correct or the next purchase becomes costly. None of these can be removed by software, but good records let you plan around them and explain results to partners, lenders and officials.

Power cuts and production downtime

Where the supply is unstable, plan for it. Record the date, start time and length of every outage that stopped the machines, and whether you ran a generator or inverter. Record the fuel used. After a month you have a clear figure for lost hours and for the extra fuel cost.

• Compare planned output with actual output on days with outages.
• Allocate generator fuel to the orders that ran on it, so the cost per unit includes it.
• Note spoilage or rework caused by a stopped batch, such as a half-cooked or half-cured lot.
• Review whether shifting a heavy process to a more stable time of day is possible.

With a downtime log, a decision to invest in a bigger generator, an inverter or a solar backup becomes a calculation rather than an argument.

Raw material lead times

Many inputs come from India, China or other countries, and the time from order to stores can be unpredictable because of transport, customs or season. The cost of running out is stopped production, idle workers and missed orders. The cost of overstocking is tied-up cash and storage risk.

1. Record the order date, the receipt date and the supplier for each import or long-lead purchase.
2. Calculate your actual average and your worst lead time, not the supplier's promise.
3. Set the reorder level as average daily use multiplied by the worst realistic lead time, plus a margin.
4. Review every quarter, and before festivals when demand and transport both change.

Where the input is locally sourced, record the quality problems by supplier. Over time you will see which supplier delivers consistently.

Credit sales to dealers and retailers

Most small factories sell through dealers and shops, and many sales are on credit. The cash cycle is long: you buy material, pay labour, produce, deliver and wait. Keep a customer ledger with invoice date, amount, receipts and balance. Review the oldest dues weekly. Set a credit limit for each customer, and stop deliveries when it is exceeded.

Cheques, bank transfers and wallet payments should all be recorded against the invoice, not as a lump sum. Customers often pay part of a bill, and without invoice-wise matching, disputes arise over which bill remains open.

VAT and invoice records

If your business is registered for VAT, taxable sales carry output VAT at 13 percent and eligible purchases carry input VAT that is adjusted against it. Some goods and services are exempt or treated differently, and the rules can change. Keep purchase bills in the form the tax office requires, record the bill number and the supplier's registration number, and issue sales invoices in the prescribed way. Ask your accountant to confirm what applies to your products. Software can keep these records tidy and produce the lists your accountant needs; it does not decide the law.

Whether your unit must be registered, how it is classified and what licences it needs depends on its size, activity and location. Confirm with the relevant offices and your adviser. Keep copies of every registration and renewal date in one place and set a reminder.

Labour records

Factory labour includes permanent staff, daily wage workers and piece-rate workers. Keep attendance, hours or pieces, and payment records. If you apply a piece rate, record output by worker and order. Labour contribution to cost per unit becomes visible, and disputes about wages shrink. Payroll rules and contributions have their own requirements, so follow current guidance from the labour office and your accountant.

Festival and seasonal demand

Dashain and Tihar produce spikes for many products, and harvest or wedding seasons produce others. Review last year's monthly output and sales before each season. Plan raw material and workers in advance. Record which orders were missed because of capacity so you have evidence for expansion plans.

Putting it all in one place

A production system holds recipes, stock, orders, costs and dispatch. Add the downtime log, supplier lead times and customer ledgers and you have the records that matter. The WebsNP factory production software can be set up around these Nepal-specific points. For VAT-ready invoicing alone, see VAT billing software. Message us on WhatsApp to discuss your unit.

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