Introduction: As the year-end approaches, distributors have many tasks, but perhaps the most important is clearing accounts. After calculating business accounts, inventory accounts, and then profit accounts, don't forget to calculate the "IOU accounts." Regarding IOU accounts, distributors should remember this timeline and act accordingly. If your outstanding IOU amount is less than 2 months, it's within controllable range. Set a stop-loss point, manage it well, and chase payment urgently in the near term. If your outstanding IOU amount is less than 3 months, you might need to take a 20% discount; multiply the amount by 0.8, and that's your target. If your outstanding IOU amount is less than 6 months, you have a 50% chance; drop everything and chase it urgently. If your outstanding IOU amount is more than 12 months, don't expect to get it back; learn the lesson and focus on earning money to cover the loss. If your outstanding IOU amount exceeds your net profit, you're using your own money for charity. This is the payment collection timeline from British sales expert Porter Edward. Recently, our editorial team posted a call for stories about "debts" and received many responses. We selected two cases to present real stories of "debts" around distributors.
1 Manufacturers vs. Distributors: Manufacturers Dominate; Retailers vs. Distributors: Retailers Dominate A distributor surnamed Tan from Huaibei, Anhui, told New Distribution, "Local chain supermarkets in Huaibei are very large, and they owe a lot of payment, using your money to stock other products. Distributors are very passive. If we don't sell, we have pressure from manufacturers' tasks; if we sell, the goods are sold but the money is gone." At this point, Tan sighed. Tan told New Distribution that the brands he represents, such as Mengniu, have been owed over 7 million yuan by local chain supermarkets this year. Although the agreement is monthly settlement, it's been three months and they still haven't settled. Moreover, this chain supermarket also represents competing products, and not to mention raising our related fees, it's common not to get a "good position" for display. Regarding "debts," Tan expressed his feelings: "Every link in the FMCG supply chain must have a chain of integrity. Manufacturers must keep their promises to us, and downstream retailers must also keep their promises. Only then can there be a healthy, virtuous cycle. But in reality, the current situation is that manufacturers dominate over distributors, and retailers dominate over distributors. Distributors are in the middle, in a very awkward and passive position."
2 Recovering 90% of Debts Is Already a Cause for Celebration "About two months ago, local supermarkets had been delaying payment to us, not just our distributor. They kept delaying and refused to pay. We had no choice but to unite distributors to form a 'chamber of commerce,' send four representatives to negotiate, and after four rounds of talks, we only recovered 90% of the total owed." Zeng, a distributor from Fuzhou, Jiangxi, shook his head and told New Distribution, "We had no choice; getting 90% made us happy, better than getting nothing." Regarding credit sales, Zeng said, "Credit sales and debts are unavoidable. Sometimes you have to sell on credit. Nine out of ten people are doing it. If you don't, you can't make the deal. Unless your brand is particularly strong, but how many such brands are there? To promote new products, you have to sell on credit. You've already taken on the agency, the goods are in the warehouse, and leaving them there is the same as selling on credit to put them in the supermarket. You've signed a task with the manufacturer, so you must sell them."
3 Shift Your Credit Sales Mindset and Establish a Credit Sales Control Mechanism After hearing these two stories, I deeply feel the difficulties distributors face, as if "earning cabbage money but worrying like selling drugs." Many say, "Credit sales are like buying enemies; I'd rather go bankrupt than sell on credit again. Credit sales equal seeking death." Although that's the logic, truly saying "no to credit sales" is too hard. Today's distribution environment is no longer a simple transaction. In China's relationship-based and face-saving society, credit sales have become an "unspoken rule" in the industry. Coupled with "malicious" competition, credit sales have become less rational. Perhaps many distributors still think credit sales are a sharp weapon, believing they can sell more and are a means to fend off competitors. But in reality, often others are doing well while their own business declines year by year. They thought credit sales would lock in customers, but customers don't appreciate it and even suspect your motives. "Leave the goods here, and I'll pay you after selling them," is the most common phrase from store owners. Little do they know that the store owner has given cash and prepayments to other products and really put your product aside. Others pay cash for goods, and the owner promotes them, while your product is just a supplement or even a decoration. Regarding credit sales, no matter what method or technique you use, the first and most important thing is to correct your credit sales mindset. Credit sales are not a "sharp weapon" to retain or develop customers, nor a means to fend off competitors, nor do they necessarily lead to more sales. Shift your mindset, guide your operations, and set up a credit sales mechanism. 1) Carefully Determine Targets Set target terminal levels for credit sales, and according to the 80/20 rule, try to keep credit sales terminals within 20%. Pan Wenfu, a research expert on distributor topics, believes distributors can classify customers into different credit sales levels based on their scale, strength, and historical settlement characteristics. The following is an example: Credit Rating | Terminal Quantity Ratio | Credit Sales Measures A-class customers | 10% | Give a certain credit limit (the credit limit is one month's purchase amount for that terminal); credit period set at 30 days B-class customers | 10% | Generally require cash on delivery, but can be flexible; needs approval from superiors C-class customers | 80% | Require cash on delivery 2) Standardize Credit Periods Although credit periods are agreed upon in advance during business dealings, in reality, when the time comes, terminal owners habitually delay again and again. Store owners often think distributors are small companies, or that salespeople are "easy to bully," and internal management is not strict. In standardizing credit periods, strictly control time; salespeople settle at the due point; if overdue, sales supervisors settle. Pan Wenfu believes that in credit agreements, standardization must be emphasized, such as signed credit agreement documents, product specifications, and details. Through formalization, inform terminal owners of the company's scale, strength, and management standards. 3) Design Credit Limits When setting credit limits, consider two points: First, strictly design credit limits based on terminal level; second, try not to extend full credit; it's best to require a 50% or 30% down payment. 4) Daily Process Control Pan Wenfu says some terminals insist on not settling accounts because some historical issues from the past haven't been resolved, or the mess left by previous sales staff, and the current staff is unwilling to take over, only avoiding the issue, causing the store owner to withhold payment. Strengthen process control, treat credit sales as a routine task in monthly inventory checks, meetings, and financial indicators. Don't expect salespeople to proactively handle credit sales issues, especially historical ones. For credit sales, attention must be raised at the company and financial levels. For business personnel's guidance and training, it shouldn't just be about promotion techniques to get products into terminals; also develop a set of scripts for cash-on-delivery. At the same time, incorporate credit sales assessment into business performance. Regarding credit sales, in the past, it was often a distributor's personal business habit. It's easy to say at the beginning, thinking it's just a small amount, but later the terminal debts accumulate, the amount grows larger, and they find they "can't stop the car." In the process of distributor operations, remember: "There is no small matter in credit sales!" The above are the author's views. Do you have any good ways to quickly recover credit sales debts? Welcome to leave a message and share your experience with everyone. -END-