Key Distributors: Benefits and Burdens

When senior management makes the decision to utilize key distributors, significant impact is felt across the enterprise—both short-term and far-reaching. 

Key relationships are mutually beneficial, and have an organic quality; in a word, they are grown, over time, with great care.

For both buyer and seller, the benefits and ensuing burdens increase. 

Benefits:

Burdens:

In most cases, when moving to key distributors, the consequences are far-reaching.  Some client relationships will grow exponentially, while others could become marginalized.  Contracts are usually written between the seller and the key distributor, outlining the commitments and responsibilities of each party.  Many such agreements include purchasing commitments by the client, vendor assistance with marketing, as well as product-return policies, terms of shipment and payment.

The process is usually collaborative, with involvement from all stakeholders, including finance and sales.  Even in companies where the corporate credit department is at odds with the sales staff, differences are set aside when key relationships are forged.

Credit quality is one of the most important considerations when choosing key distributors.  When a key distributor goes sideways, the scale of the relationship can do immense damage to the seller.  An over-reliance on hope can sometimes yield poor decision-making (ie, “we’ve known them for years, they are doing just fine…”).  Creditworthiness is a moving target, and when conditions change (product value deterioration, high return rates, cashflow degradation), a company’s ability to pay can swiftly unravel. 

This is where a business credit insurance policy can play an essential role, providing an outside opinion on the creditworthiness of the client, and a backstop in case things spiral out of control.  When switching to a key distributor model, business credit insurance should be a part of your planning.