Revenue that you can't collect is not revenue. It's inventory given away on credit. GT expansion is full of opportunities to make this mistake at scale.
Why Credit Is Unavoidable in GT
The GT channel runs on credit at every level. Brands give distributors credit. Distributors give retailers credit. This is structural — it's how the channel has always worked, and it won't change.
Typical credit cycles:
- Brand to distributor: 15–30 days (established relationship)
- Distributor to retailer: 7–15 days (varies by market)
In new states, these cycles typically stretch by 50–100% during the first 6 months as payment patterns haven't been established and distributors are testing your enforcement.
The Three Ways Credit Turns into a Collections Problem
Problem 1: Primary growth masking secondary failure — A distributor orders consistently (your primary keeps growing) but secondary isn't happening. Inventory builds up at the distributor. When the distributor can't sell through to retailers, they delay payment to you — hoping that returns and adjustments will square the account. By the time the brand realizes secondary isn't converting (often month 4–5), there's a large outstanding balance that cannot be collected cleanly.
Prevention: Weekly secondary data visibility. If secondary-to-primary ratio drops below 0.7 for two consecutive months, stop fresh dispatch and investigate before the balance grows.
Problem 2: Scheme abuse creating phantom claims — Distributor receives goods and agrees to pass on your scheme to retailers. You approve the scheme. Six months later, the distributor presents ₹8 Lakhs of scheme claims with incomplete documentation, but they've already netted it against your receivable. You can either dispute (and lose the distributor) or accept (and eat ₹8 Lakhs).
Prevention: Scheme reimbursement requires verified secondary data + retailer-level scheme execution confirmation before payment. Define this in the term sheet, not in a dispute resolution call.
Problem 3: Distributor over-extension and financial fragility — Some distributors handle too many brands, carry too much credit from retailers, and are financially fragile. When one brand's collections go bad (not yours), a domino effect hits all their principals — including you.
Prevention: Before appointing, ask: “How many brands do you currently handle and what's your total monthly turnover?” A distributor doing ₹2 Cr/month across 15 brands is thinly spread. Check their financial reputation with other brand principals before you're in. Learn more about how to find and evaluate distributors.
Practical Collections Discipline
Credit limits are not optional. Define a maximum outstanding balance for every distributor. When they hit the limit, supply stops automatically (not after a negotiation). This requires willingness to hold supply, which requires some courage — but distributors who know you'll always supply regardless of outstanding have no payment incentive.
Payment on time vs. supply on time linkage. Make the relationship explicit: timely payment results in timely supply. Delayed payment results in supply hold. This is standard practice among larger FMCG companies and should be standard for regional brands too.
Collect early signals of distress. Distributor asking for unusual credit extensions, bringing up scheme claims without prior notice, becoming difficult to reach — these are early signals of financial trouble. Act before the balance becomes too large to recover.
Do not let outstanding grow “hoping secondary will catch up.” It rarely does. Once a distributor is 45+ days past credit terms, the probability of clean collection drops significantly. The earlier you intervene (supply hold, senior relationship call, partial write-off discussion), the better the recovery.
Sell directly to 40L+ kiranas — no GT network needed. Launch on Kirana Club's D2R Marketplace.
Explore the Marketplace →For D2R / Prepayment Models: A Different Risk Profile
Platforms that operate on prepayment from retailers (or short credit with digital debit) shift the credit risk profile entirely. Brands get paid before goods are delivered. The risk is not default — it's rejection rate (retailers who prepay but then find the product unsatisfactory and don't reorder).
This model works well for established brands with retailer trust. For new brands, asking for prepayment creates an adoption barrier that requires compensating with better margins or lower MOVs.
For the full picture on GT distribution strategy, see our complete guide to FMCG distribution in India. Also explore D2R (Direct to Retailer) models for an alternative approach to credit risk.
