This could be a major issue for distributors in the coming months. Here are a few points shared with a friend who works in this slice of our industry:
- Get aggressive in calling customers who go past the payment terms. Most distributors don’t even call until invoices are 30 days past due. Begin making calls at 35 days. This will help you determine if the customer isn’t paying because of invoice errors or paperwork issues rather than some other reason.
- Think about creating invoices that show a fee for late payment. He suggests fees in the 20 percent range.
- If the customer was not a good credit risk before the crisis, they will be a terrible risk after. Consider canceling any low margin special pricing agreements to cover your risk.
What Could Your Suppliers (or Distributors) do to Improve Your Current Situation?
Many people skip open-ended questions on surveys. Others just toss out a “filler” answer and move forward. The results here demonstrate AHTD membership’s commitment to the phrase, “Teamwork will help us through tough times.” Since space does not permit us to list every response, what you see is a best-of list:
Share examples of customer types and segments who are still strong
– Our reports from the field point to segments which are still expanding and buying the products they need to maintain or grow production capability. The information shared publicly was broad-ranging. Manufacturers have a better and more global view of the world. Information like, “Proctor and Gamble is demonstrating active purchasing across the country” would be of value. So too would be SIC data on customers purchasing.
It would be beneficial for the vendors to frequently update their operational statu
s – Customers want to know the potential availability of products both today and into the future. Many sellers we have spoken with seek information for their customers.
– Now might be the time for manufacturers to relax their rules on direct shipments. Why? Handling the products fewer times means less human contact: contact with truck drivers, receiving and shipping staffs, and customer interactions. This would contribute to the “social distancing” we all hear so much about. However, direct shipping does present some issues. Here are other comments/requests tied to the practice:
- Better coordination for handling orders that are refused at customer sites and sent back to the manufacturer.
- Better communication on drop shipments prior to sending to determine what businesses can receive.
Establish a peer network/application/portal of available inventory
– Finding products to serve customers when shortages arise will be an issue. History tells us there will be unforeseen shortages of some products. This seems like a natural for our group. If you do not have such a plan, I would recommend checking out
. Their experience in the fluid power industry demonstrates their plan works.
Be prudent with webinar requests –
Distributors are trying to maintain contact with and serve customers by phone and web-conference technology. At the same time, distributors are being bombarded by well-intentioned suppliers striving to push new product information into their channels. If a distributor doesn’t participate in your webinar, it may not mean a lack of interest in the products. Instead, they could be struggling to serve mutual customers. Recorded sessions provide more flexibility to the distributor sales force.
The Number One Comment From Distributors
Better payment terms – Tied closely to the behavior of customers, distributors are facing a potential cash flow squeeze. This comment mentioned repeatedly. I see a need for the industry to make accommodations when possible. Here are some points to consider:
From the AHTD PAR Report:
Cash Cycle = Average Collection Period + Inv. Holding Period - Accounts Payable Payout Period
The cash cycle determines the number of days of investment in a product from the time it is purchased from the supplier until the sales invoice is collected from the customer.
The typical AHTD distributor works with a cash cycle of 72 days. Significant collection times from customers changes this number of days and required the distributor to change their business plan. Doing such during a time of crisis could be painful and require a great deal of negotiation with banks and other sources of finance. This impacts the distributor’s ability to grow once the Coronavirus situation is over.
The Number One Comment From Suppliers
Forecasts – Suppliers seek to better understand the future of the market served by their distributors. The ability to be prepared for the coming uptick in business (and it will happen) is critical for planning factory usage and maintaining the supplier’s sources of raw materials, subassemblies, and components used in production. Distributors have a better understanding of what’s happening in their territories than the manufacturer. Again, calling on the strength of AHTD, we need to double down on our efforts to provide supply partners with a window toward the future behavior of customers.
Also, In the News
The Coronavirus is real and impacting distributors. One of the distributors we spoke to has had two employees hit with COVID-19. This resulted in the closure of one facility and a doubling down on already stringent social distancing and sanitation policies. Our best to these people.
One AHTD member has joined in the Coronavirus fight. Grace Engineered Products applied their manufacturing technology to create the plastic face guards used by healthcare professionals and first responders during this crisis. The product went from idea to design, test, and production in less than a week. Currently, Grace is producing 3-5,000 units a week. And, keeping with Grace’s philosophy of selling exclusively through distribution, the product is available to Grace distributors. Check it out here:
AHTD distributors are providing equipment to be used in Coronavirus testing equipment and respirators. During our interviews, one distributor told us some of the critical controls used in respirators being built by an automotive company were being purchased from their company.
This Week’s Survey
Once more we plan to measure the impact of the downturn with a repeat of our ongoing questions tied to business levels. Also, we will check in with people to determine which industries are still purchasing products and how the Coronavirus pandemic has impacted value-added services.
Our bonus question asks our members to prognosticate on how we might drive business forward should this, and I quote, “crap continue through the end of summer” or beyond.
A Couple of Parting Thoughts
Some of you might be reading this from your office, many from home, maybe even a couple of folks are hunkered down in their top-secret underground bunker. While our environment has changed, our industry continues to move forward. I am concerned about our business, but, truthfully, I am more concerned about our mental state. I spoke to a friend yesterday who told me he has slept in his own bed every night for the past 28 days and, being a dedicated road-warrior, the whole concept of being home instead of on the road is wearing on him. Let me encourage you to take a break. Schedule some time to call one of your favorite AHTD friends and talk about vacations, family, life, and maybe even politics. Hell, call me if you’re desperate. Together, we will survive.