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Supermarkets commonly delay payments for the following reasons:
- They use excuses such as the distributor's inventory turnover days exceeding the approved standard, unclear accounts, or mismatched documents.
- They fob off distributors with reasons like needing to introduce a large batch of equipment or stock, requiring substantial promotional or advertising expenses for holidays, paying for new store renovations, annual rent, head office audits requiring payment deferrals, or headquarters transferring funds.
- Distributors representing too many products with varying payment terms across brands can lead to unwarranted financial entanglements. For example, a distributor may represent 2 first-tier brands (30-day settlement), 4 second-tier brands (45-day), and 6 third-tier brands (60-day). Although contracts are separate, the company has only one account number, so the supermarket's settlement clerk often uses the longest term to settle, or claims insufficient available balance in the settlement system to pay. Moreover, supermarkets base settlement amounts on their own data, making it hard for distributors to verify.
Of course, some supermarkets, especially small and medium ones, have poor business ethics and maliciously default, contributing to endless payment delays and bad debts for distributors.
Delaying payments to distributors has become a key revenue source for supermarkets and an industry "unspoken rule." Cash-on-delivery is not applicable in the FMCG industry, and for powerful supermarkets, most distributors find it hard to change this chronic problem.
Breakthrough Strategies: While hard to change, it's not impossible. Distributors can strive to find breakthroughs to shorten payment terms and reduce bad debt losses. To ensure normal operations, they must find ways to mitigate the adverse effects of payment terms. Youshang Zero-Supply provides solutions:
By using a supplier-specific management system (Youshang S6) for comprehensive data analysis, aging analysis, and calculation control, combined with the following points, similar issues can be avoided:
Sign separate settlement contracts per brand to avoid being dragged down collectively. If a distributor has multiple brands, it's best to sign separate contracts with appropriate payment terms: 15 days for first-tier brands; 30-45 days for second-tier brands (which sell well and are less affected by available balance); 60 days for third-tier brands (with longer sales cycles). For best-selling first-tier brands, distributors can even demand timely payment through green channels and supply control. Separating brands makes it easier to verify available credit with the supermarket's finance team and secure partial payments.
Use concessions to trade for better payment terms. Distributors can offer special products like promotional items, cut-price goods, or clearance stock to negotiate less stringent contract terms and special payment periods, such as 20-30 days. Additionally, paying extra promotional fees can be leveraged to negotiate priority in settlement, ensuring smooth turnover of goods and funds. This is like sacrificing a pawn to save the queen; distributors need to be creative and offer "small favors" to supermarkets.
Develop a feasible collection plan. Categorize all receivables into "green," "yellow," and "red" lights. Green means within the normal payment period (e.g., 60 days); yellow means overdue but within acceptable range (70-90 days); red means beyond acceptable (e.g., over 90 days). Set reasonable proportions: green not less than 80%, yellow not more than 15%, red not more than 5%. For green, minimal action; for yellow, close monitoring and intensified collection efforts; for red, go all out, including suspending supply, freezing promotional support, or even affecting supermarket sales.
Minimize excuses for supermarkets to default. To reduce payment withholding, distributors must manage themselves well and not give supermarkets a "handle." Often, supermarkets default due to distributors' own management lapses, giving them loopholes to exploit. For example, not thoroughly understanding the supermarket's complex settlement process, failing to provide invoices, statements, or evidence on time, or not clearing promotional fees or product damage costs promptly. Distributors must start with themselves, ensuring robust management, timely logistics, sound financial systems, and lean operations to avoid giving supermarkets any reason to delay.
Prepare a bad debt budget and seek manufacturer support. Distributors must create detailed market development budgets, including potential fund shortages and losses from payment delays, and plan for bad debts. When selecting supermarkets for distribution, prepare for the worst case of funds being tied up, ensuring you have spare capital to maneuver. Coordinate with manufacturers on settlement policies and market support for supermarket operations, striving for their support to prevent being stuck. If a supermarket's arrears are severe, report the situation promptly to the manufacturer to seek reassessment and support in future settlements and market investments.
Additionally, maintaining good relationships with supermarket purchasing and finance departments is crucial, as contracts are negotiated by purchasing and settlements decided by finance, leaving some room for negotiation.
In summary, payment terms are inevitable, and KA supermarkets have varying financial systems and settlement processes. Distributors should fully understand every aspect of the supermarket's operations, use payment terms as a bargaining chip with manufacturers, and implement a supermarket-style management mechanism in their trading companies.
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