The company wants cash, the shops want credit: how a distributor stops being squeezed

Every distributor knows this squeeze. The company wants its money when the goods arrive, or soon after. The shops want the goods today and will pay “next week”. You stand in the middle and pay the difference out of your own pocket.

The strange part is that it gets worse when business is good. More sales means more credit given out, and more of your money sitting in other people’s shops. Here is why, and what to do about it.

Where your money goes

The sum that explains it

One line tells you how much of your money is sitting in shops right now:

Money in shops = credit sales per day × average days shops take to pay

Say you sell ₹30,000 a day on credit and shops pay after 21 days on average. That is ₹6.3 lakh of your money in shops at any moment. The same business with shops paying in 14 days has ₹4.2 lakh out, so ₹2.1 lakh comes back into your hands without selling a single extra piece. (These are example figures. Put in your own.)

This is why chasing the average down by a few days matters more than almost anything else you can do for your cash.

Five ways to close the gap

1. Know the real number, by age

“Shops owe me ₹8 lakh” tells you nothing. Split it by age: this week, last week, this month, older. The money older than 30 days is where almost all the risk sits, and it is usually a handful of shops. Our guide on tracking shop credit without a notebook shows how.

2. Decide each shop’s limit in the office

Give each shop a credit limit in rupees, decided by you, not by the salesman at the counter with the shop owner watching. He will say yes every time, because yes is the only answer that gets him to the next shop.

3. Give good terms to good payers only

Not every shop needs the same terms. A shop that always pays in a week has earned a bigger limit. A shop that stretches every bill to 45 days gets a smaller one, or cash only on new orders until the old bill is cleared. The rule is fair because it follows how each shop behaves.

4. Collect on a fixed day, against an exact bill

Shops pay the distributor who is regular and specific first. “₹4,260 for the bill of the 12th” gets paid; “anything for the old balance?” gets a shrug. See how to collect payments without losing the shop.

5. Don’t let stock eat the cash either

Goods sitting in your godown were also paid for with your money. A month of extra stock is a month of cash you cannot use. If the company keeps sending more than the market takes, read when the company sends more stock than you can sell.

What not to do

• Don’t stop credit for everyone overnight. The shops will buy from the next distributor who gives it. Tighten it shop by shop.
• Don’t offer a cash discount without doing the sum. 2% for paying now can cost more than the credit itself. Our guide on discounts shows the working.

How Mulberry Sales helps

Every shop’s balance is shown split by age, built from its unpaid bills. Each shop can have a credit limit, and a bill that would cross it is refused on the salesman’s phone and again on our server (on Business, you can let one bill through with a one-time code). A shop can be put on hold for new bills while your salesman keeps collecting, and every bill goes to the shop on WhatsApp showing what was paid and what is left. See collection and credit control.