Eddie Mugulusi,Founder at Fab Creations.
In the early days of our manufacturing enterprise, our products were primarily supplied to retailers on credit. The arrangement was such that we delivered a consignment but only got paid once the product was sold. Now this arrangement seemed fair at the time because it enabled us get into most supermarkets with ease. In just a few weeks, we got our Ketchup at the time into numerous supermarkets in Kampala. However the more places we sold, the bigger our creditors’ list became and the higher our accounts receivable (money owed to us).
Since #Shakeketchup was new on the market, the initial purchases off supermarket shelves were quite slow. Before long we realised our working capital was getting depleted and it was all happening too fast. The business was not bringing in money fast enough because we had very few cash on delivery type clients and our debtors were taking too long to pay up. At that point we risked bankruptcy. This is the reality of most small business.
Having taken lessons from that experience, we did things in a different way when we introduced our #ShakeEnkooge juice line. To begin with, we put in place a strict no credit policy. We dealt with only those outlets that were willing to pay cash on delivery. We also moved away from supermarket sales for the start since most of them require inventory on credit. Most of our effort went to quickly building product awareness and demand in order to jumpstart sales at the retail outlets. This new strategy worked well.
As a small business owner, you have to strike a balance. Sometimes it is impossible to avoid credit especially when you are just starting out. You however need to determine and put a limit to your accounts receivables. Your business needs cash to survive. You should also only issue credit to those outlets that seem to be working well for your product. This will ensure your money gets paid alot faster. Finally, put some effort into building awareness and driving product trial. Help the retailers get customers through the door. Once you prove to them that there is a market for your products, they will willingly pay cash.