---
title: "Hard to Collect Debts: A Moral Decline or an Industry Regression?"
description: "As the year-end approaches, many distributors are stocking up for the Spring Festival or pushing sales to meet annual targets, only to find their working capital tight. Upon checking their books, they discover numerous outstanding credit sales, ranging from tens of thousands to millions. Thus, a new task emerges: debt collection. Phone calls like \"Let's settle this year's account\" are met with excuses like \"Business is tough this year; I'm short on cash. Can we delay?\""
author: "冷冻君"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-12-15"
language: "en"
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original_source: "https://mp.weixin.qq.com/s/g9eFVUfDMfQw233BM2ZQxg"
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# Hard to Collect Debts: A Moral Decline or an Industry Regression?

> As the year-end approaches, many distributors are stocking up for the Spring Festival or pushing sales to meet annual targets, only to find their working capital tight. Upon checking their books, they discover numerous outstanding credit sales, ranging from tens of thousands to millions. Thus, a new task emerges: debt collection. Phone calls like "Let's settle this year's account" are met with excuses like "Business is tough this year; I'm short on cash. Can we delay?"

As the year-end approaches, many distributors are already stocking up for the Chinese New Year, and some are pushing sales to meet this year's sales targets. However, some distributors suddenly realize they don't have much working capital on hand. So, they flip through their account books and find many outstanding credit sales. Roughly calculating, some are in the tens of thousands, some in the hundreds of thousands, and some even reach millions.

Thus, distributors have a new task at year-end: debt collection.

"Hello, let's settle this year's account."
"Oh, business has been tough this year, and I'm short on cash. Can we delay a bit?"

Are you familiar with this dialogue? Probably every distributor has encountered it, and some even stop answering calls. Worse, some simply disappear. The credit extended is hard to recover. When asked if this year's collections were easy, some say yes, some say it's a bit difficult, but more often, people just sigh helplessly, and some directly tell me, "Easy? Not a chance."

Many have noticed that this year's money seems to have vanished—either paid to manufacturers, extended as credit to customers, or invested elsewhere. In any case, they have little cash on hand. Despite seemingly tens of millions in sales, there isn't much actual cash.

"Old Zhang, the new product is out. Want some?"
"Sure, but can you ship first and I'll pay when I have cash?"
"Oh, Old Zhang, you're putting me in a tough spot. Company policy is cash before delivery. I can throw in extra samples, though."
"Alright, let me figure something out."

Cash before delivery is now standard practice for food companies. No matter how powerful you are or how large your sales volume, you must pay upfront to get goods. This is especially true for first-tier brands, which, due to their strong market control, follow the principle of cash before delivery when cooperating with distributors. No payment, no shipment. After all, our products sell well and our brand is strong; if you don't have money, don't do business. Let those with money do it.

Companies don't extend credit because they dare not. For example, this year, raw material costs have been rising, and with environmental regulations, many companies' production and operating costs have increased. But production lines can't stop, and workers need to eat. This requires strong cash flow. What to do? Loans are only for emergencies, so they collect cash from distributors. This isn't unique to this year; it's been the case in the past.

Since companies can demand cash before delivery from distributors, why can't distributors do the same with secondary wholesalers?

Ha, young man, you're still too naive!

At some point, it became customary for distributors to extend credit to secondary wholesalers. Some secondary wholesalers even tell distributors, "Look, others give me credit. Your product isn't the only one on the market. Since we're good brothers, if you don't give me credit, I'll have to buy from someone else."

So, as a distributor, you end up on the path of extending credit.

Let's talk privately: Do you really have no money?

Many people ask for credit because they claim to have no money. But is it true or false?

We know that distributors' channels are typically circulation and supermarkets. For circulation channels, their customers are secondary wholesalers in various wholesale markets. Secondary wholesalers then deliver goods to various retail outlets. If retail outlets don't pay the secondary wholesalers, then the secondary wholesalers naturally have no money to pay distributors. Even if they do, they are unwilling to take on the risk themselves. Of course, some secondary wholesalers do have money but prefer to invest in stocks, real estate, or cars rather than pay distributors. But such people are rare.

Besides circulation, another major channel for distributors is supermarkets. Many distributors have headaches with supermarkets. Why? High entry fees, display fees, large return volumes, and, more importantly, long payment cycles. This lengthens the receivables period and directly dries up cash flow. Nowadays, many distributors are gradually withdrawing from supermarkets and shifting to convenience stores and fresh food stores.

The triangular debt among distributors, secondary wholesalers, and retail outlets

Distributors extend credit to secondary wholesalers, and secondary wholesalers extend credit to retail outlets, forming a unique and seemingly harmonious relationship. Conversely, no one can clearly say where the money has gone. Everyone claims to have no profit, but in the end, it's the distributors who suffer.

If credit is the effect, what is the cause?

Forced stocking, cross-region selling, price undercutting, homogeneous products, and low-end products are probably the root causes of credit.

Some companies, to achieve sales targets and create perfect annual reports, force large amounts of stock on distributors, especially first-tier products, which suffer the most severe and frequent forced stocking. Promotions happen every month, and they wish they could fill distributors' warehouses entirely with their products.

Can distributors refuse such companies? Of course not, because these are first-tier products, and distributors rely on year-end rebates, which are conditional on meeting annual sales targets. So some distributors start cross-region selling to meet targets. Others sacrifice profits to secure rebates, leading to price undercutting.

When some companies see first-tier products selling well, they imitate. When first-tier brands see a product selling well in a region, they replicate it nationwide. As a result, more homogeneous products flood the market. With more common goods, prices drop, and profits shrink. Secondary wholesalers have no money to restock, so they turn to mid-to-low-end products because they are cheaper.

Because of low prices, many distributors or secondary wholesalers take on more brands, some even over a dozen. They believe more brands mean more profits, but they don't realize these brands are silently occupying their capital.

**Refusing to extend credit is not just a statement or a slogan; it requires the collective effort of the entire industry.**

Some say, "Isn't credit just between distributors and customers? If we all agree not to extend credit, won't that solve it?" But that's not the case.

If companies stopped forcing stock on distributors just to make their reports look good, distributors would have more time to think about how to do well in the market instead of worrying about who to sell the warehouse full of goods to.

If distributors focused on single products and simplified their portfolios, they would have more capital to discover good products.

If secondary wholesalers stopped undercutting prices, our profits might be a bit higher.

If retail customers shortened their payment cycles and everyone acted with more integrity, I think you wouldn't complain about the poor market environment.

Of course, we are making progress

It took only a few years from realizing the severity of the credit problem to starting to change.

In these years, we have been continuously improving. Companies are developing new products to change the market oversaturated with homogeneous products. Distributors are changing their mindsets and becoming more brand-conscious. Secondary wholesalers and retail outlets are discovering that mid-to-high-end products are increasingly profitable. Consumers also notice that products are not only tasty but also attractive, and although prices are a bit higher, it doesn't matter.

Because we are the younger generation.

When we identify problems and try to change, success is not far away.

I am willing to extend credit to you because I trust you. Please don't consume that trust. When I am unwilling to extend credit, it's not because our relationship is bad, but because I really need the money.

At year-end, please say thank you to those friends who extended credit to you. At year-end, please repay your debts promptly. Because every small step we take can bring progress to the entire industry.

Source: Frozen Food Marketing
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