---
title: "On the Front Line | Sales Not Growing, Operating Funds Increased to Over 1 Million, Often It's an Accounts Receivable Problem!"
description: "Last month, a distributor from Huangshi, Hubei, messaged me saying his annual sales were over 50 million yuan, but sales had barely grown in the past three years. Net profit was declining, yet operating funds had increased by one million, making business increasingly difficult. I helped him analyze the situation: the decrease in operating profit is caused by multiple factors, such as regional competition, brand support, and e-commerce price impacts. However, if sales haven't grown but operating funds have, we need to identify where the increase went. After checking, he found that accounts receivable had increased by 200,000 yuan, totaling 500,000 yuan per month, meaning 12% of monthly sales were tied up in receivables. To reduce this, we implemented a five-step plan: systematic inventory, linking receivables to performance, setting benchmarks, continuous tracking, and classifying customers. After one month, his receivables dropped from 500,000 to 350,000 yuan, achieving initial success."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-06-07"
language: "en"
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# On the Front Line | Sales Not Growing, Operating Funds Increased to Over 1 Million, Often It's an Accounts Receivable Problem!

> Last month, a distributor from Huangshi, Hubei, messaged me saying his annual sales were over 50 million yuan, but sales had barely grown in the past three years. Net profit was declining, yet operating funds had increased by one million, making business increasingly difficult. I helped him analyze the situation: the decrease in operating profit is caused by multiple factors, such as regional competition, brand support, and e-commerce price impacts. However, if sales haven't grown but operating funds have, we need to identify where the increase went. After checking, he found that accounts receivable had increased by 200,000 yuan, totaling 500,000 yuan per month, meaning 12% of monthly sales were tied up in receivables. To reduce this, we implemented a five-step plan: systematic inventory, linking receivables to performance, setting benchmarks, continuous tracking, and classifying customers. After one month, his receivables dropped from 500,000 to 350,000 yuan, achieving initial success.

Last month, a distributor from Huangshi, Hubei, messaged me on WeChat saying his annual sales were over 50 million yuan, but sales had barely grown in the past three years. Net profit was gradually declining, yet operating funds had increased by one million, making business increasingly difficult. If this continues, there's no point in doing business; putting money in the bank would earn more interest than doing business. What should he do?

I helped him sort it out: the decrease in operating profit is caused by multiple factors, such as the intensity of regional competition, brand support and the strictness of cross-region sales management, the impact of low-price e-commerce, and the distributor's ability to operate the market. These need to be analyzed one by one.

But if sales haven't grown, yet operating funds have increased, you need to tell me where the increase went:

> 1. Is it due to high inventory pressure from the brand's sales targets? 2. Is it due to increased cash reserves for ordering because of insufficient product capacity? 3. Is it due to increased market investment prepayments? 4. Is it due to increasing accounts receivable? 5. Is it due to continuous fixed asset investments? 6. Or something else?

These data can be checked through the backend of the business terminal's mobile system. Compare the changes over the past three years and give me a precise answer.

The next day, the distributor replied, surprised: of the nearly one million increase in operating funds, 200,000 was due to increased receivables. Currently, his company's monthly accounts receivable are as high as 500,000 yuan, meaning 12% of monthly sales become receivables.

These receivables are constantly incurring high bank interest. So how to reduce accounts receivable? You can start with the following 5 steps:

**Step 1: Systematic Inventory, by Region and by Salesperson.**

**Regional Manager Inventory Sheet:**

**Regional Salesperson Inventory Sheet:**

**Inventory Summary:**

> 1. There will be differences in receivables data among regional managers and salespeople, some high, some low, some good, some bad. 2. Since some can control it well, others in worse regions can also do it. 3. Talk to the best and worst performers separately to understand the specifics.

**Step 2: Accounts Receivable Must Be Linked to Performance Pay.**

A simple truth: employees only like to do what the boss checks, not what the boss hopes for. To quickly achieve goals, you must link receivables to performance pay, but do it gradually, setting a percentage reduction target, e.g., first month target from 10% to 8%.

Here are some methods to consider:

> 1. Reward regions and individuals who meet targets, including team and individual rewards. 2. For those who don't meet targets: delay salary payment until targets are met.

Or: Pay basic salary normally, deduct performance pay, and make it up after payment is collected.

Or: Set a deadline; for each day overdue, fine 30 yuan, with direct supervisors bearing 50%.

**Step 3: Set Benchmarks and Restrict Receivables Authority.**

1. List each salesperson's monthly sales and receivables, compare in a full meeting, identify the best and worst performers. The best share experiences, the worst explain reasons for lagging.

2. Receivables authority must be taken back; grassroots salespeople have no right to grant receivables. Supervisors' involvement in receivables should also be restricted, e.g., limit amounts or number of stores, and implement one-store-one-policy with separate ledgers.

3. There will be different voices during the meeting. For example, some customers might switch to competing products, affecting sales; some customers are unwilling to pay cash on delivery, having formed habits; some have special reasons. At this time, the distributor's leader must stay firm; this must be done.

The meeting's theme should be how to do it well, not whether to do it. Excellent performers should share simple, easy-to-understand, and replicable experiences, avoiding special cases.

**Step 4: Continuous Tracking and Checking.**

Regional managers should follow up at daily morning meetings, weekly meetings, and monthly meetings to increase the team's attention to receivables and promptly identify and solve problems.

It's recommended to use tables for tracking. After each day's work, post data on the wall for clarity. Managers calculate team averages, mark those above average in red, and those below in green, creating pressure. For those seriously lagging, communicate to determine if it's an attitude or skill issue. If attitude, do more ideological work and talk more, but if they are overly negative and affect others, fire them immediately.

If it's a skill issue, provide more on-site help. Aim for full payment, cash on delivery. If not possible, settle for partial collection, gradually increasing the collection ratio.

**Step 5: After a Period, Summarize and Treat Customers Differently.**

Classify customers into four types based on financial strength and repayment willingness:

**1. Strong financial strength + strong repayment willingness:**

Salespeople should settle normally; under no circumstances allow receivables. Once the door is opened, there will be endless trouble.

**2. Strong financial strength + weak repayment willingness:**

Increase collection frequency. Salespeople and supervisors should take turns to collect frequently, going every few days. Collect whatever you can, even if it's like squeezing toothpaste, to cultivate the habit of cash on delivery. Of course, maintain a good attitude and be prepared for a long-term, high-frequency battle.

**3. Weak financial strength + strong repayment willingness:**

These customers genuinely lack money. Understand their supply channels; they might be special channels like government procurement with slow payments. Assess their value.

First, control supply volume. If their credit is good, just ensure no stockouts; don't overstock. Second, don't provide expense support; instead, offset against payments or release after settlement. Finally, if the customer has many product categories, you can set different expense support for cash-on-delivery and receivables, which can attract limited funds to your products.

**4. Weak financial strength + weak repayment willingness:**

These customers generally have low value. The worst acceptable outcome is "pay for the previous delivery before the next," meaning no two unpaid batches. If they are habitual defaulters, take necessary measures, such as reporting to police or suing to protect your rights.

For this classification, salespeople and supervisors should use various connections to understand customers' operations, accurately and objectively judge their willingness and financial status. Once classification is set, implement the corresponding strategy firmly. There may be a temporary sales decline, but it's temporary; don't give up halfway.

Finally: After one month of inventory and implementation, this distributor's receivables dropped from 500,000 to 350,000 yuan, achieving initial success with little impact on sales. I believe it will recover soon.

Traditional channels differ from modern channels. Modern channels have clear regulations, and receivables are unavoidable, but managing receivables in traditional channels is not difficult. The main issue is the sales team's habitual thinking, plus previous neglect, so store owners got used to it.

Essentially, most store owners have cash on hand. It's just that in recent years, the market favors buyers, and store owners feel unbalanced about cash on delivery. If you keep pressing for payment, they will gradually adapt to cash on delivery over time.


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