Collection of Overdue Invoices, EMD’s and Security Deposits from Government Procurement Bodies & Trade Channel for Pharmaceutical Business

Pharmaceutical companies face pressure to cut costs and lower prices, while struggling with decreased profitability. They are facing healthcare reforms that affect drug trials, sales, pricing, and manufacturing. Improving cash flow management can ease these pressures and support innovation, leading to sustained profits.

 

At a Pharma CEOs virtual round table on the opportunities and challenges of post COVID-19 pandemic, organized by the Bangalore Chamber of Industry and Commerce (BCIC) and KDPMA, it was noted that while the challenges for the large pharma companies are scaling up of capital investment, pricing and productivity, the MSMEs have their own challenges of cash flow management, costs for compliance, manufacturing and product promotion besides skill availability.

 

1. How GGA can assist with “Faster” Cash flow Collections – especially Government Dues/Procurement Bodies etc.

 

A MNC Pharmaceutical client had a problem with the collections of their Overdue Invoices, EMD’s and Security Deposits – the debtors were of the following nature:

• Central and State Government Procurement Bodies
  • NACO
  • RITES
  • SAMS
  • Odisha State Medical Corporation Ltd
  • PGIMER
  • Rajasthan Medical Services Corporation Limited
  • Other State Procurement Bodies etc.
• Dealers and Distributors
• Government / Private Hospitals

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

1. 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 delayed 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 categorization – GGA made a collections strategy to address the overdue issue and focus on collections from the Government.

 

2. Problems identified as to why did the customers not pay on time – Government Customers

For Government customers, documentation is of prime importance and GGA validates the information, documents and data available  prior to visiting the customers.

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 on a continuous and consistent basis, issues not closed timely
• Supplies to multiple locations and CRC’s (GRN’s) not available, due to which the invoices could not be submitted on time
• Delay in supplies leading to” LD” deductions and expiry stock norms not met
• Relevant signatures not obtained, bills not approved and updated in the Government Portal
• Multiples approvals to be obtained - procurement department, user department, accounting department

 

3. Solutions Provided for Government Collections

• Follow up and visits to multiple locations – Pan India to collect the pending CRC’s (GRN’s)
• Supported the client in preparing the documentation for invoice submissions and validating the same before submission
• Most Government departments have moved to online submissions to documents, however since the pending submitted documents were very old and the expiry date of the product was older than current date, invoices could not be loaded. Worked with the Government Departments (Finance, Procurement and IT teams) for a solution to load the old invoices and collect the money
• In many instances to EMD’s and BG’s – the client did not have complete details to claim refund / return. Due to GGA’s extensive reach, the regional teams were deployed to meet the customers with the available information to enable refund/return.

 

4. Problems identified as to why did the customers not pay on time – Dealers and Distributors

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

The dealers and distributors never use their own capital / funds and pay after they have recovered their own dues from the market. Therefore, if their cashflow faces a problem, they will not pay their creditors on time.

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
• 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 with short expiry, resulting in expired unsold stock an discount claims for selling short expiry
  • Excess material received OR material not ordered was received / material dumped, with promise to liquidate
  • Schemes / discounts promised but not honored
  • 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

 

 

5. Solutions Provided for Dealer and Distributor Collections

• Identified and engaged with Trade customers to document the disputes and obtain evidence to support the claims. Validated the value of claims, based on promised price v/s sales register value
• Coordinated with the customers supply chain and finance team to audit the expired stock at batch level and validate it with sales register to ensure it was originally sold to the dealer
• Arrived at the correct value that was receivable from the trade and negotiated settlements and payment plans, ensuring the same are adhered to by the dealers

 

 

6. End results of the assignment

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

• Collections from the Central and State Procurement Bodies
• EMD Collections
• Dealers & Distributors

 

Performance Dashboard – Government Collections 

 

Performance Dashboardfor Follow Up with State Procurement Bodies-May 15,2022
Rs in lacs	Govt 1	Govt 2	Govt 3	Total	Details
Total O/S Shared with GGA	651.8	509.82	111.04	1272.62
					Govt 1 Direct
					1. Credit of INR 15.77 Lacs received on 29th Nov'21 ( LD amount INR 3,442/-); 2. Credit of INR 49.83 Lacs received on 2nd Dec'21 (LD amount INR 9,694/-)
					3. Credit of INR 48.34 Lacs received on 2nd Feb'22 (LD amount INR 191,031/-); 4. Credit of INR 65.43 Lacs received on 22nd Mar'22 (LD amount INR 930,078/-) Govt 2 - Govt 1
					1. Credit of INR 155.24 lacs received on 24th Dec'21 (LD amount INR 4.12 L); 2. Credit of INR 168.75 Lacs received on 28th Mar'22 (LD amount 11 lacs)
Paid	182.8	330.18		513.02
Paid (Govt 2)		20.86		20.86	Credit of INR 20.86 Lacs received on 3rd Mar'22
Paid (Govt 3)			17.52	17.52	Credit against invoices for INR 19.13 lacs received
LD Deducted	11.34	15.42	1.61	28.37	LD deducted by 1. Govt 1 - INR 13,136 + INR 191,031 + INR 930,078 = INR
Short Supply / Expiry		7.78	5.13	12.91	Short expiry - 1900 units (as per contract expiry or min 9 months required at time
					of delivery) no exception
Refused - Material returned as expired			6.51	6.51	Recommend to remove from AR list
Refused - Material not Received	0.42	1.68		2.1	Recommend to remove from AR list
2015 cases - part payment cases	3.12			3.12	Recommend to remove from AR list
Old short payment appearing as O/S			56.37	56.37	INR 56.37 is towards deductions and not collectable - reconciliation shared with
					Client (LD)
Govt 2 submitted the bills to Govt 1		16.59		16.59	Govt 1 removed these invoices due to some internal queries; Govt 2 will re-submit
					these bills along with 100 lacs bills
					Fresh Cases - CRCs handed over to Mr XYZ ; Bills submitted to Govt 2 on 28th April'22 and Govt 2 has also processed the bills on same day and payment
Fresh Cases added in Apr'22 (Govt 2)		16.62		16.62	will be released as per payment terms (45 days)
					Bill submitted to Govt 2 on 24th Dec'21 of INR 100.69 Lacs; Govt 2 raised queries now resolved - current status as below
					*Short Expiry of 1900 kits - INR 7,74,139/-; * Short supply of 800 kits 2 locations of INR 3,75,497/- (Rs 38K penalty) - Rs 8.12 lacs will be deducted
					Invoices submitted to Govt 2 on 17th May 2022 & Govt 2 will submit the invoice
Bills under query with Client		100.69		100.69	to Govt 1 by 27th May'22
Bills pending for submission (CRC received)					*Invoices of INR 11.14 lac has been uploaded on Aushadhi portal against PO # 63; Hard copy will be submitted by 9th May'22; Govt 3 refuse to accept Invoice for 3rd Trache of State 2 Location of INR 1.33 lacs due to contract obligation of 50%
					supply
					*Invoice of INR 12.76 lac against PO# is yet to be uploaded - unable to load
			23.9	23.9	in portal GGA To raise with Govt 3 IT TEAM
Govt 1 - New Data Apr 22	368.4			368.43	Fresh Cases - CRC follow-up in progress - CRC Received / In Transit - INR 354 lacs;
					CRC Follow-up WIP - INR 14.4 Lacs ( Inv of Pithoragarh of INR
Govt 1 - New Data May 22	85.61			85.61	Tranche 4 invoices added in May-22 - CRC Received / In Transit -Rs 32 lac; CRC Pending- Rs 53.60 Lacs

 

Performance Dashboard – EMD Collections

BG EMD - Status update May 15, 2022
	BG Count	Pending %	EMD/SD	Pending %	Total	Pending %
Rs in Lacs	BG Count	BG Value	EMD/SD	EMD/SD Value	Total	Total Value
Cases Allotted to GGA	56	709.43	65	605.52	121	1314.95
Out of Scope Work not done	0	0	13	176.82	13	176.82
Effective cases allotted to GGA	56	709.43	52	428.7	108	1138.14
Collected	44	641.92	32	333.1	76	975.02
Details of past payment collected and confirmed - Now Knocked off post sharing of details by GGA			4	15.91	4	15.91
Balance	12	67.52	16	79.69	28	147.21
Forecast	0	0	3	35	3	35
Under GGA follow-up	5	22.62	3	18.17	8	40.79
Release letters/ Indemnity Bond to be issued			2	7.53	2	7.53
Balance Cases  - Low Probability of obtaining additional  Inputs	7	44.9	8	18.99	15	63.89
Incomplete / Short Supply - Risk	3	42.79	1	10.75	4	53.54
Contact details awaited	3	0.24	2	4	5	4.24
BG submission proof required/ EMD Details & Documents	1	1.86	4	4.23	5	6.09

 

Performance Dashboard – Dealers & Distributors

Category	In Co. Scope	In GGA Scope of Collection
	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	218,009,625	181	100%	116,763,993	13,956,016	19,594,894	22,762,733	23,439,711	37,010,639
Amount collected in 6 months		79	36%	41,716,115	7,955,784	10,642,333	9,442,444	8,442,223	5,233,331
Balance to be collected	218,009,625	102	64%	75,047,878	6,000,232	8,952,561	13,320,289	14,997,488	31,777,308
Risks of non payments / issued raised by customers	-	36	38%	43,832,487	901,700	2,544,299	4,665,634	11,038,735	24,682,119
Alternate KYC Required / customer absconded		9		6,753,803	901,700	923,333	435,555	1,006,651	3,486,564
Refuse to Pay due to packaging damage / owner died etc		10		13,435,269		943,222	1,543,232	1,765,454	9,183,361
Material Expired		17		23,643,415		677,744	2,686,847	8,266,630	12,012,194
Balance collectable	218,009,625	66	27%	31,215,391	5,098,532	6,408,262	8,654,654	3,958,753	7,095,189
Forecasts for future collections		31	8%	9,509,420	3,800,212	1,908,946	1,754,233	895,347	1,150,682
Suggested for legal cases - ability to pay but no intent to pay		5	3%	3,321,010		211,333	848,743	537,373	1,723,561
Under detailed follow up - discussions awaited		30	16%	18,384,961	1,298,320	4,287,983	6,051,678	2,526,033	4,220,947

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

 

7. 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 Ups for Collection of Overdue Debtors	Focus
	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
1 - 30 days	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 momentum 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

 

8. 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 client's 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

 

 

9. 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 gets 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.

 

 

10. About GGA

GGA India Private Limited (GGA) is a focused “Business to Business” Account Receivables Management (“ARM”) 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