Consumer Firms Extend Credit Period For Cash-Starved Distributors

The companies are willing to accept payments with a delay of up to five-15 days, especially at the month-end or on the last bill of the quarter, the distributors told BloombergQuint on the condition of anonymity out of business concerns. The trend intensified as consumption slowed in urban and rural areas.

Hindustan Unilever Ltd., India’s largest consumer goods maker, is doing that. “In some select cases, we actually stepped in to support our distributors through credit,” Srinivas Phatak, chief financial officer of the nation’s biggest consumer goods maker, told investors in an earnings call for the quarter ended September. “It has happened during the quarter and it has also happened towards the end of the quarter.”

Shrinking working capital and trends like smaller retailers sourcing goods directly from hypermarkets have hurt distributors, resulting in bloated inventories and forcing them out of business. That comes as Indians are buying fewer biscuits and shampoos to cars as incomes stagnate, dragging the growth in Asia’s third-largest economy to its lowest in six years.

“There is a real liquidity issue in the marketplace with the trading community today,” Anand Kripalu, managing director at United Spirits Ltd., the maker McDowell’s and Bagpiper whiskey, said in the second-quarter earnings call. “If you supply, they’ll take the stock, but it’s at your peril,” he said, adding that the company’s is not pushing stock into the supply chain to boost sales. “Somebody else may have more pressure on top line and say, ‘I’ll take the risk. Let me supply and deliver my quarter’s numbers’. I’m not going to do that.”

Distributors said not all companies have given up targets and continue to push products down the supply chain to meet target.

The trend of extending credit to bulk dealers is, however, restricted only to parts of India where the slowdown is pronounced. Price cuts and promotions haven’t helped companies as the revival in consumption remains subdued, with rural demand growing at 0.5 times the urban demand, according to a Nielsen India report for the sector for the three months through September.

Watch | Sharleen Dsouza explains the impact of the cash crunch on the supply chain.

Here’s what the distributors from different regions of India had to say:

West

• In Mumbai, companies that used to seek upfront payments are now giving distributors time to pay.
• A distributor from Goa said companies opt for such measures to meet sales targets as distributors are sitting on high inventories.
• Companies force distributors to accept more goods, especially on the last bill of the quarter, to meet sales targets.

East:

• In Odisha, companies are still accepting upfront payments for consumer goods.
• In West Bengal, companies are giving distributors a credit period of five days and haven’t increased targets in the past month.

North:

• A distributor from Punjab said larger companies have been offering credit period of five-to-seven days to distributors, which has increased over the last 45 days.
• Smaller firms in the state have been giving distributors a higher grace period for payments. Some are even accepting staggered payments.
• In Uttar Pradesh, companies have extended credit period to up to seven days and are also not forcing them to push stocks.

South:

• No extension of credit payment period as consumption is the least affected in the region, a distributor from Telangana said.
• Companies aren’t extending credit to distributors in Bengaluru.

Growth in the sector may not witness a quick recovery, Nielsen India said, which pared its growth estimates for the current fiscal to 9-10 percent from its previous estimate of 11-12 percent. Nielsen said the slowdown has been the most severe in north India.