Improving Debtor Collections in times of Seasonal Cash flows for Agri Input Business

Poor harvests, fluctuating commodity prices and changing patterns of demand can cause cash shortages for farmers – the cash crunch affecting the farmers impacts the payment of dues to fertilizers, seeds, crop protections and farming implements etc players in the agricultural value chain.

 

The farmers operate on a seasonal cashflow and there are times when the farmer is cash-rich and others when he has little or no income.

 

The Agri Input companies have to be very careful while extending credit to the trade channel and have to manage timely collections because if the farmer has had a bad season than one of the first compromises is to reduce spending on farming inputs, leading to lower yields, lower future income, and a downward spiral, leading to further overdue debtors.

 

One of our clients in the Agri input business had a problem with overdue debtors – despite the best efforts of the sales team to collect on time.

35% of our clients debtors were overdue by more than 180 days, the client approached GGA for assistance to:
 

1. Reduce the overdue debtors and collect the outstanding
2. Identify the reasons for customers regularly delaying payments

To commence the assignment, GGA requested for the detailed debtors ageing and used an analytical approach to identify the delinquent and bad paying customers, GGA categorized the customers into 4 categories:

Category	Description
A category	Customers buys regularly and pays on time
B category	Customers buys regularly, but pays erratically and has overdue  across multiple ageing buckets
C category	Customer has not made a purchase in the last 3 months, but still  owes money to our client
D category	Customers where legal cases had already been filed – sec 138 etc

 

Basis the above categorization – GGA made a collections strategy to address the overdue issue and focus on the delaying, discontinues and difficult customers.

 

The A category customers, would continue to be managed in-house by the client, while GGA would collect the overdues from the B & C category customers and Identify customers with “No Intent to Pay” Or “No ability to Pay”

 

For D category customers, GGA would drive out of court settlements

 

1. Problems identified as to why did the customers not pay on time

 

The farmers claimed cashflow issues – despite having a good season.

 

No one pays without multiple reminders, and the person who follows up first, gets paid on priority:

 

While visiting the customers for the collections activities we identified the following reasons, why customers do not pay, as per the agreed credit period

• Follow up not done, as the customer was discontinued and not buying
• Sales person had left the organization and the new person did not take ownership of previous overdue
• Customer was unhappy with the product and gave the following reasons for the non-payments
  • Sales person said to pay after material sold and credit period offered was 180 days
  • Sales person not visiting / addressing the issues OR making sales calls
  • Material received after the due date and could not be used
  • Excess material received OR material not ordered was received / material dumped, with promise to liquidate
  • Cross billing – material invoiced to him, but delivered elsewhere
  • Material of substandard quality / defective or spoilt
  • Schemes / discounts promised but not honoured

• In some cases of overdues more than 180 days, we found the following issues
• Customers had absconded and the shops were closed / shuttered
• The customer had died and no one was running the business
• The partnership was terminated and no partner was willing to take responsibility for the payment of the past dues

2. Legal cases

 

For legal cases, there were 2 types of customers

• Existing customers on whom legal cases had already been filed – sec 138
• Potential customers, with “No Intent to Pay” but had ongoing business operations

 

GGA approached the existing legal customers with an open mind, we spoke to them about their continuing potential legal liability and encouraged them for an “out of court settlement”. We did not negotiate the settlement on behalf of our client.

 

About 28% of the legal customers, agreed for a discussion on out of court settlements. For the balance customers, a tie up was done with a Pan India Law Firm that specializes in Recovery Suits – the law firm and GGA then worked together for issuing summons, NWW’s, Police Intervention etc.

 

Summary Dashboard - Legal Cases
In GGA Scope of Collections
Category	Nos	%	Total	1 to 2	2 to 3	3 to 4 Y	> 4 Y
Data given for Legal cases	141	100%	73,277,033	8,294,894	21,748,565	16,592,242	26,641,333
Amount settled - out of court and cash collected / PDC's	40	28%	12,125,283	3,187,522	4,543,311	2,212,228	2,182,222
Balance to be collected	101	83%	61,151,750	5,107,372	17,205,254	14,380,014	24,459,111
Balance not collectable (settled amount to be written off)	40	38%	27,566,502	3,200,041	7,944,211	6,311,131	10,111,119
Balance to be followed up	101	46%	33,585,248	1,907,331	9,261,043	8,068,883	14,347,992
Legal cases status - balance	45	24%	17,567,180	495,907	4,177,885	5,081,644	7,811,744
Alternate KYC Required - customer cannot be found	23		8,672,229	91,463	2,133,333	2,124,211	4,323,222
Customers has no knowledge of the court case	13		4,596,987	183,333	1,132,221	1,426,222	1,855,211
Customer ignores summons / NBW's etc	9		4,297,964	221,111	912,331	1,531,211	1,633,311
Balance - Legal cases under follow up	56	22%	16,018,068	1,411,424	5,083,158	2,987,239	6,536,248
Forecast for settlements - decision to be taken	21	12%	8,497,619	408,946	3,372,644	1,865,347	2,850,682
Customer wants court case to continue	35	10%	7,520,449	1,002,478	1,710,514	1,121,892	3,685,566

 

For customers with overdues, who had ability to pay, but no intent to pay – we identified the concerned person and the client’s legal team sent them preliminary legal warning, so that the customer were made aware of our clients intention.

Some of the customers that were not taking the follow up seriously, now began to follow up to discuss payment terms.

On the rest of the customers – legal notice from the lawyers office were delivered

 

3. End Results of the Assignment 

 

The assignment was for an initial period of 6 months and thereafter overdue more than 90 days would roll over to GGA for collections:

 

GGA submits detailed performance dashboards on a monthly basis, please see the dashboard

 

• Recovered 27% of the overdues within the first 6 months
• Identified risk and cases of absconded and customer service issues – 60%
• Under follow up and closed in the next 3 months – 8%

Summary Dashboard of a Collections Assignment - Conducted over 6 months
	In Co Scope	In GGA Scope of Collections
Category	0 to 180	Nos	%	Total	180 to 365	1 to 2 Years	2 to 3 Years	3 to 4 Y	> 4 Y
Data given at the commencement of the assignment	488,009,625	540	100%	275,763,993	41,956,016	20,594,894	62,762,733	43,439,711	107,010,639
Amount collected in 6 months		289	27%	75,072,407	23,198,848	8,223,401	23,968,318	11,737,830	7,944,009
Balance to be collected	488,009,625	251	73%	200,691,586	18,757,168	12,371,493	38,794,414	31,701,881	99,066,629
Risks of non payments / issued raised by customers	-	165	60%	164,945,613	5,569,399	8,776,863	32,610,340	27,823,186	90,165,826
Alternate KYC Required customer absconded		70		68,364,624	101,700	900,845	9,252,899	7,466,857	50,642,324
Refuse to Pay due to issues / material dumping etc		29		25,368,135		646,231	923,494	6,253,894	17,544,516
Material Return / Damage - No outstanding		21		14,938,912	2,773,391	2,439,697	1,166,847	6,546,783	2,012,194
Schemes promised but credit not given - adjusted	-	17		12,466,077	-	398,478	935,317	1,519,941	9,612,341
False Billing - Sold to third Party		10		8,803,925	567,000	1,204,451	5,155,304	117,466	1,759,705
Sales person intervention required - Material diverted	-	11		16,657,808	-	1,136,245	11,152,091	2,884,274	1,485,198
Other issues - details as given		7		18,346,133	2,127,307	2,050,917	4,024,387	3,033,972	7,109,548
Balance collectable	488,009,625	86	13%	35,745,973	13,187,769	3,594,630	6,184,075	3,878,695	8,900,804
Forecasts for future collections		44	8%	20,909,821	11,112,203	1,408,946	3,672,644	265,347	4,450,682
Suggested for legal cases - ability to pay but no intent to pay		20	1%	3,421,010		311,333	848,743	537,373	1,723,561
Under detailed follow up - discussions awaited		22	4%	11,415,141	2,075,567	1,874,351	1,662,688	3,075,975	2,726,561

 

The reasons for risks and non-payments, were analyzed, so that future risks and non- payments could be avoided.

 

4. Time Frame for conducting the Assignment

 

GGA set up a time frame for conducting the assignment, we received assurances from the management for 2 hours per month to discuss the performance dashboard

 

Time frame to collect the old outstandings
Month	Normal process follow up for collection of overdue debtors	Focus
1 - 30 days	Collection of data / contact details of customers / discussions with the sales team	Continuous follow up by the GGA team till the overdue invoices are collected
	Circulation of data to the customers / identifying the right person to  speak with
	Customer visits by GGA team - telecalling and follow up     commenced
	Payments start coming in. Customers looking into their records -especially for older years
2nd - 3rd month	Payments momemtum builds up, Customers respond - already issued, disputes, will pay
4th month	Submission of additional information to customers, continuous follow up
5th - 6th month	Customers start paying for older years, push for difficult collections, legal cases etc

 

5. Authority letter and introduction letter at the time of assignment commencement

 

To establish GGA credentials to meet the customers and talk to them about the outstanding and payments – GGA obtained an authority letter and an introduction letter (for the internal sales teams)

The format of the letters was prepared by GGA and vetted by the client’s legal team.

 

6. Nature of the customers who had overdue payments

 

For the Agri Input client, the customers were medium and small sized dealers and distributors. The business was seasonal in nature and not exclusively with our client.

The dealers and distributors were situated in Tier 2 and Tier 3 cities, smaller towns and regional mandis / locations. A few of them were in remote locations.

The invoices were large in the number, while per invoice value was low.

 

This resulted in a large and wide spread customer base, with high volume of invoices

7. Challenges at the time of commencement of the assignment

No assignment starts smoothly due to apprehensions regarding changes and new processes and GGA faced certain challenges prior to the signing of the agreement and for about 15 days post commencement of the assignment.

 

The challenge was from the sales team, as they were resisting change, as well as a third party talking / visiting their customers for collections, further they were worried about how we would be treating their customers and the feedback the customers might give about the sales process etc.

 

The resistance from the sales team disappeared, after 15 days due to GGA’s project management approach:

• We enable the sales team to meet / surpass their sales and collections targets and KPI’s
• GGA presents itself as an extension of the sales team – our resources our mapped to the regional clients sales teams
• GGA complements the sales team collections activities – we do not compete with them
• GGA keeps the relevant sales person in loop for any communication with the customer
• In case the customer has an issue – it is first discussed with the relevant sales person
• GGA passes back any sales queries from the customer, to the sales team

8. How did the customers view GGA as a third party – Positively OR Negatively

 

We are glad to say that there was no negative fallout and customers accepted GGA’s follow up processes and approach for collections

 

GGA’s team consists of multilingual telecallers and Regional Feet on Street Resources

– Pan India.   The resources are all on the payroll of GGA and highly trained in “customer management and collections management” – they are all B2B experts.

 

When GGA’s team meets the dealers and distributors – after prior appointment, they take care of the following communication protocols:

• Always address them respectfully and preferably in the local dialect for an elder
• Never bother the dealer / distributor during peak business hours OR when they are dealing with a customer
• In case the customer get physical / abusive or rude – leave the locality immediately and without further escalation with the customer
• Discuss the outstanding, only after establishing the bonafides and showing the authority letter

There are times when the dealers / distributor does not want to talk to us, in that case we take their permission to take the relevant sales person on a conference call, so that the bonafides can be reinforced and discussions can move ahead.

 

9. About GGA

GGA India Private Limited (GGA) is a focused “Business to Business” Account Receivables Management Service Provider. GGA concentrates exclusively on designing, developing and implementing customized B2B debtor collections solutions for its clients.

Founded in 2002, GGA works with B2B organizations to collect from both concurrent and legacy debtors.

For any information or clarification, please contact

 

Gaurav Gupta

CEO Chartered Accountant

 

+91 98111 63422,

gg@ggaindia.com