“Questions” Distributors need to ask themselves (at least
monthly)
Am I collecting my a/c’s monies on time? (DSO)
Am I holding too much / too little stock? (DSS)
Have I any equity in the business?
Am I taking more than my share (commission) out of the
business?
5. Am I able to pay Koala?
1.
2.
3.
4.
Information required to answer these questions
1. What do the distributor customers owe the distributor at the end
of a given month and the ageing of these account? (source:
distributors accounts receivables)
2. What stock does a distributor have on hand at the end of a given
month (units and value)? (source: stocktake end of June and ins /
outs in subsequent months.
3. What has the distributor sold to customers month by month (units
and value)? (source: SARS)
4. What has the distributor purchased from Koala month by month
(units and value)? (source: monthly statements)
5. How much does the distributor owe Koala at the end of each
given month and the ageing of the account? (source: monthly
statement)
6. What is the Distributors forecast sales month by month? (Source:
annual f/cast by month )
Processing Information to provide answers to above questions.
1)To answer these questions distributors need to
review their monthly aged Accounts Receivable Summary
(Automatically generated by either Quickbooks / MYOB accounting
packages)
Ensure all monies due fall within their credit terms for each account.
Account credit terms can range from 0 days to 45 days, its up to each
Distributor to decide and communicate closely to each individual
customer his / her terms.
Most distributors allow up to 30 days and for select high volume a/c’s
who consistently pay 15 days after receipt of monthly statement without
being chased for payment allow them 45 day terms. Generally a
Distributor should not allow their average credit term to exceed 30 days
and should any account go beyond terms they need to be formally
approached and advised that you the Distributor can’t afford to extend
any further credit until a/c is brought into line. If a customer can’t adhere
to this without constant reminders the Distributor will be obliged to get
paid at Time of each service.
Any a/c over 60 days must be promptly brought back into line and if they
can’t comply, Distributors and local a/c manager need to jointly visit the
customer and work out and acceptable program to bring it into line or
revert to COD .Or as a last resort arrange removal of racks and turn a/c
over to E.C Credit for Collection.
For example a Distributor who has any monies due in the 90 + days in
their aged Accounts Receivables monthly summary is not collecting
their money properly. Like wise any monies in the 60 – 90 days shows
lack of appropriate collection procedures.
Any monies in the 30 – 60 day column indicates an need for Distributor
to personally and consistently follow up with each a/c and bring back
into line.
A Distributor who has a long list of overdue a/c’s and a significant
amount of monies overdue must recognise he/she has allowed this to
happen and is solely responsible for correcting the situation ASAP.
Inevitably a Distributor with long over due receivables may have
difficulty paying their Koala invoices on time and will be obliged to use
their own personal monies/credit card or even get a bank loan to ensure
they don’t fall behind in paying their Koala a/c and lose their generous
Koala credit facilities or worse still have their Distributorship terminated.
2. Distributors should monitor their days sales outstanding (DSO)each
month and ensure they are staying within an acceptable range.
Days sales outstanding are the days sales a Distributor has made and
which have not yet been paid.
It is calculated simply by taking the total of your Aged Receivables at
end of each month and deducting from this amount the prior monthly
sales until the total Receivables figure is accounted for.
Example :say your Aged A/C Receivables is $35000.00 as at end of June
and your sales for June were $27000.00 and May $23000.00 then your
DSO figure is:
a.c rec end june =$35000
less june sales - $27000 (represents 30 days)
Balance
=$8000
Less part may
Sales- 8000/23000x30=10.4 days
DSO end june = 40.4 days.
In simple terms this Distributor is owed for virtually all of the past 40
days sales he she has made.
As a guideline Distributor DSO should never exceed 45 days. DSO’s
falling into the range of 30 – 42 days show that overall the Distributor
total monies due is within an acceptable level. However if each month
amounts show up in the 60 days and above columns of your aged
receivables report this indicates that while the TOTAL Receivables / Day
Sales outstanding are OK the Distributor has allowed certain customers
to use & possibly abuse their Credit Terms.
By calculating his/her DSO each month a distributor can quickly & easily
see how they are tracking when it comes to overall credit management
of their own business.
3) How much stock should a distributor hold
Days stock on hand(DSOH) held by any Distributor at any time should
range between 30 days minimum – 45 days maximum. Ideal is about 35
days stock.
To calculate DSOH simply deduct from your stock on hand at end of
each month your forecast sales for the months ahead until all the stock
is used up.
For example a Distributor with 40,000 cards and wrap in his/her
garage/store as at end of June and with forecasted sales for July of
28,000 units and Aug 30,000 units would have42 days sales on hand as
calculated below:
Stock units on hand 30/6/07 = 40,000 units
sales
- 28000 units(30days)
Balance
= 12000 units`
Less part of forecasted Aug sales
12000/30000x 30
=12 days
less forecasted July
Total days stock on hand = 42 days
This Distributor is managing overall stocks pretty well – not too much
but enough to fully service a/c til next order arrives.
In this example the Distributor needs to place an order and receive
approx 20,000 units by approx. mid to late July and then again at end of
July place another order for approx. 15 – 18000 units.
If a Distributor orders only once a month and orders equivalent to a
whole months sales forecast he/she will see her days stock holding for
a couple of weeks to beyond the 45 days stock holding level . This is not
the end of the world but will place some pressure on them to pay the
Koala a/c on time if at the same time their Receivables from their
customers are also at the maximum level.
The very worst stock approach for a Distributor is to order erratically
or under order against their sales forecast and not take into account
new rack installations and end up not having stock to service their
customer needs. Everyone loses when this occurs – Customers,
Distributors and Koala.
Ideally stock levels should be carefully reviewed twice a month and two
orders placed each month. Alternatively ordering every 3 weeks will
suffice. However leaving it to only once a month exercise will inevitably
result in too little or too much stock from time to time.
In any event it is worthwhile for every Distributor to calculate their days
stock on hand at end of every month to keep a check overall on how
they are progressing or managing their total inventory.
Of course it is critical that all Distributors monitor their top 20 – 30
selling cards/wrap and always ensure they have sufficient stock of these
to place in racks . Similarily each distributor needs to quickly identify
their bottom 15 – 20 cards and wrap selling titles` and ensure they don’t
re-order them.
3)Am I able to pay my Koala a/c and also check if I have equity in my
business or am I taking too much money out of it.?
A simply calculation each month end will provide the answer.
All I have to do is add my stock on hand and my a/c’s Receivable and
my bank a/c balance as at end of any given month and can compare this
with what I owe Koala in Total as at the end of the same month.
For example as at end of June 06:
My stock on hand is 30,000 units (@ .44c = $13,200
Plus my receivables at 30/6 = $15,000
Plus my cash in bank as at 30/6 = $2,500
= Total of what I own = $30,700
Less what I oweto Koala as per june statfment = $27,500
=My Surplus (Deficit) = $3,200
This tells me I can pay my Total Koala a/c in full and I should be able to
pay each invoice on time provided of course I get my Receivable
($15,000) in on a timely basis.
Because I have a surplus I am not taking more than my commission out
of the business &in fact I have built up some equity so that if I was to
wind up my business end june I would end up with $3200 in my hand.
Obviously if year after year I was able to keep an equivalent amount
from each years trading and decided to terminate say after 4 years
Iwould have $12,800 coming to me on top of what I drew out of the
business every month to pay bills and myself over the course of the 4
years.
If however what I owed Koala as per their end june statement was
$32,000 my position would be as follows.
My stock on hand = $13,200
My Receivables = $1,500
My Cash in bank = $2,500
Total
=$30700
Less my Koala a/c balance of $32000
My deficit = $1300
This tells me I will eventually be unable to pay my koala a/c,I’ve taken
more out of the business than my commission and in fact am
spending all my entitlement plus part of the credit Koala has extended
me. In fact Im putting my hand into koala/s pocket.
Should this ever occur Distributor must rectify within 7 days by putting
an equivalent amount of their own money back into the business or
borrowing from a bank to quickly rectify the situation and must never
allowed this to reoccur.
Footnote;
Graeme did all the above calculations for each distributor as at end
june.
Your account manager will review one on one with each distributor so
by End Aug any problem areas will be identified & a programme put in
place to resolve 100% ASAP.
Koala’s Credit Management position and policy
Koala Credit:
Is the sum of money provided by Koala to its distributors so that each
distributor has at its disposal sufficient money to purchase Koala Stock
and on sell to retailers without distributors having to put their hands
into their own pockets.
This money/line of credit enables individual distributors to carry stock and
accounts receivables and also always pay Koala within its generous credit
terms of 90 days, date of invoice.
Credit can be allocated between stock and receivable at the distributors
discretion.Distributors can comfortably operate their own business without
ever having to contribute money into their business themselves, providing
they collect their own receivables in a timely and consistent manner and
manage their stock holdings.
Koala is in effect financing their businesses at no cost (interest/fees) to them.
Credit Terms:
Includes many factors but commonly held to be the number of days
granted to a distributor to pay his / her account.
Koala’s official terms for distributors are 90 days date of invoice.
Koala’s stance is that distributors will have their orders automatically
processed if they are within terms.
Credit Policy
Any distributor, who for whatever reason fails to pay an invoice by its due
payment date will be put on stop credit until their account is brought up to
date. They also will be formerly advised they are jeopardising their
distributorship and any repeat occurrence will result in Koala exercising its
rights to call for payment in full of their entire account within 30 days. If
payment not received within 30 days, the distributorship will be terminated.