The sixth in a series on appointing and managing distribution partners, written from the brand side of the table.
Bad-debt stories usually get told as stories about a bad partner. Mine is not one of those, and I think that is why it is worth telling.
Nothing was going wrong when this started. It was one of our strongest markets, the business was growing, and the biggest annual sales event of that market was coming up. We shipped a large volume ahead of it, because that is what you do when the market is telling you to.
Some months later I was work ing out how to recover inventory instead of money.
1. The decision that created the problem did not look like a risk
Our terms with that partner had been 100% payment in advance. We wanted to grow the business, so we changed them to 60 days net.
That is the whole origin of the incident, and at the time it did not feel like a credit decision. It felt like an investment in expansion.
Here is what it actually was. The moment you move from advance payment to trade credit, you stop being only a supplier and start being an unsecured lender. Your receivable is an interest-free loan to that partner. A bank making the same loan would have asked for financial statements, evidence of repayment capacity, and probably security. We asked for none of those, because it did not occur to us that we were lending.
And notice when this happens. Terms get relaxed during growth, when the relaxation reads as confidence rather than exposure. Larger volume multiplied by looser terms — that multiplication is what makes the number dangerous, and both factors move in the same direction at exactly the same time.
2. The first signal arrived on schedule and I misread it
Sixty days passed and the full amount did not arrive. Part of it did.
I concluded it was a temporary cash flow issue. My reasoning was that sales were growing — not explosively, but faster than before — so the money would come round. Product was moving; payment would follow.
That reasoning contains a hole I did not see at the time. A partner's sales growth and a partner's ability to pay you are separate variables. Product can be selling while the proceeds go somewhere else entirely — to another supplier who pushed harder, to a lender, to a hole elsewhere in the business. "It's selling, so they will pay" is a hope wearing the costume of an inference.
Partial payment is the most misread signal in this whole area, because it can be read two ways and one of them is comfortable. Read generously, it is good faith. Read coldly, it is a declaration that full payment is no longer possible. The presence of a growth number next to it makes the generous reading almost automatic.
3. A repayment plan is a diagnostic instrument, not just a recovery one
The receivable eventually reached a size that required escalation internally. We agreed a scheduled repayment plan with the partner.
The first three instalments were paid. The fourth and fifth were not.
That was the moment the diagnosis changed, and the distinction is worth stating precisely: being short of cash and failing to keep a commitment you set yourself are different conditions. The instalment schedule was one they had agreed to and sized themselves. Failing it does not mean liquidity is tight. It means the capacity to pay is not there.
Their proposal at that point was reasonable-sounding: give us more time, we will sell more of the inventory and settle from the proceeds.
I did not believe it, and not because I thought they were lying. Look at the structure of that proposal. If the inventory sells, they pay. If it does not, the loss stays with me. They were buying an option, and I was funding the premium. The correct response at that point is not to extend time. It is to stop chasing money and start securing something physical.
4. Change what you are chasing
Cash was gone or going. The inventory still existed.
So we stopped pursuing payment and started looking for another partner in that market who could take the stock and sell it. We recovered roughly 90% of the inventory and moved it across. Some of it had to be cleared at a discount because the remaining shelf life was too short to sell at full price — that is the cost of the delay, and it is worth understanding that the price of hoping for two extra months shows up here rather than on any invoice.
Final loss came in at a single-digit percentage of the total receivable.
The remainder is still being repaid. We had traded with that partner for more than five years, and their principal has continued to pay down the balance on the strength of that relationship rather than any contractual mechanism that could compel it. That is worth naming as what it is: long-term relationships are invisible when things are normal and become collectable in a crisis.
5. Why the switch was fast — and it was not skill
I would like to claim the speed of that recovery as good crisis management. It was mostly something else.
We had already been looking for additional partners in that market, for reasons that had nothing to do with this incident — we simply needed more local capability to grow there. That search was in progress when the failure hit, which is the only reason we could move the inventory quickly.
The transferable lesson is not "act fast in a crisis." Speed in a crisis is decided by the options you already hold when it starts. If your answer to who else could take this inventory next month is "we would have to start looking," then you do not have a recovery plan. You have a hope of building one under time pressure, with a counterparty who knows you are under time pressure.
6. The lesson is not "don't push volume"
I want to be precise about the self-criticism here, because the obvious conclusion is the wrong one.
Would I ship that much again? No. I did put too much inventory into that partner. But the reason I did it was not a personal target or a revenue ambition — it was that the market signal was real. Sales were genuinely growing and the sales event was a genuine opportunity. Expanding volume into a growing market is the job, not the error.
What was missing was the parallel check. Following market opportunity with volume is correct. Doing it without simultaneously examining the partner's credit standing, payment capacity and financial health is what turned a normal commercial decision into an exposure.
I looked at the size of the opportunity. I did not look at the balance sheet of the vehicle carrying it. Revenue growth and credit risk arrive together — they are two sides of the same event, and only one of them announces itself.
So the principle is not to brake. It is to wire the credit check into the same process as the growth decision, so that one cannot happen without the other:
- A credit limit per partner, sized on their capacity to pay rather than on your revenue plan
- Terms relaxed in stages — 100% advance, then part advance with the balance on credit, then full credit — rather than in one move
- A re-check triggered whenever exposure jumps, not on an annual calendar
The common logic underneath all three: as the opportunity gets bigger, the frequency of the risk check has to go up with it.
The five-line version
Your turn
- For any partner whose payment terms you have relaxed: did you examine their finances at the standard a lender would have applied, before the change?
- Do you have a credit limit per partner? Is it sized on their capacity to pay, or on your revenue plan for them?
- Is there a written line that separates "temporary problem" from "structural problem" — decided in advance, before you are looking at a late payment and hoping?
- If your largest partner became unable to pay next month, is there another party who could take the inventory? Do they exist today, or would you start looking then?
- The last time you increased exposure to a partner, what risk check was triggered by that increase?
Written from the brand side of this table — twenty-two years appointing and managing distribution partners across Asian markets, across categories and price tiers.
Previously in this series: How to Evaluate a Distributor Before You Sign · Exclusive or Not · When to Stop Selling Cross-Border and Set Up Locally · What to Do When Your Distributor Asks for a Lower Price · When Is a Market Ready for a Local Launch? · Marketing Money in a Distribution Agreement.
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