Managing inventory credit: B2B retail’s Achilles heel
In India’s gargantuan retail market, the spotlight mostly is on retailers- the consumer facing side of retail- the kirana shops and their ilk. However what runs this consumer facing locomotive is a vast distribution engine comprising of wholesalers and distributors. B2B retail, or distributors essentially are the foundation on which consumer retail is built.
But why are we talking about it? As a product that set out to solve problems for retail SMBs, we couldn’t not look at this important segment. And the closer we looked, we realised that credit is a bigger problem for distributors than retailers.
Pinnu Balaji is a distributor for Bisleri at Dharmavaram, a port town in the Anantapur district of Andhra Pradesh. 48 year old Balaji has a garden-variety persona, but engage in a conversation with him and you understand the depth of his understanding about the distribution business. More digitally aware than many people at his age, he has been in this business for 8 years.
Balaji buys products (Bisleri bottles of various sizes) directly from the company by making an upfront payment. However, most of the retailers he sells to, ask for credit, promising to pay in 15 days.
“Over the 8 years, my learning is that you can’t survive in this market without credit. The problem is I have to make upfront payments for all my orders, while the people I sell to return in 15–20 days and sometimes even a month. That’s why keeping a track of who owes me how much and by when is very important”, says Balaji, a distributor with a monthly turnover of Rs 4–5 lakh.
He admits that tracking this credit through registers was full of hassles as sometimes he would ask his assistants to make an entry and they would forget. He learnt about OkCredit and has now moved all his credit and receivables to the app. Delighted with the experience, he says the app has taken away his anxiety of losing money.
The point to note here is this- there’s a high frequency of credit transactions in B2B retail, much higher than what it is in B2C retail, wherein merchants allow purchases on credit to their customers, people like you and me. For a B2C merchant, close to 60% of the sales happen on credit, as per estimates, while this number goes as high as 90% in case of transactions between distributors and retailers.
Moreover, per transaction credit in B2B retail is much higher than in B2C, making the problem of managing this credit a challenging one. There are multiple retailers with varied payback time. Correct recordkeeping is of utmost importance in a business like this and so is timely payments, because these are recurring relationships. OkCredit solves all these problems for distributors by allowing them to digitally record, then remind the retailers to pay, and finally helps the distributors collect money through its easy payment interface.
On the OkCredit app, there is a separate supplier button which allows retailers to add their suppliers/ distributors at one place. Distributors can add their retailers in the customer section and if the retailer happens to already be on the OkCredit app, a common ledger gets created. A common ledger basically allows both B2C merchant and the distributor to view their purchase relationship at one place. Both of them can view this common ledger and add transactions as per their need.
It’s pretty clear that digital bookkeeping is the solution, distributors have sorely missed all these years. Given the vast nature of India’s B2B retail- $714 billion as per a Redseer report, with 72% of it being unorganized, digitisation is need of the hour. The solution doesn’t lie in upsetting the apple cart of B2B retail and making platforms powerful in the process, rather it’s about empowering distributors to manage and grow their business.
