💊 Why Credit is Hampering the Distribution Business in the Pharma Industry

In India’s highly competitive and fast-paced pharmaceutical sector, the distribution business plays a vital role in ensuring timely delivery of essential medicines across the country. However, one of the most pressing issues faced by pharma distributors today is credit – and not in a good way. While offering credit is considered a standard business practice, it's increasingly becoming a major bottleneck that’s hurting both profitability and sustainability.

📉 The Growing Problem of Credit in Pharma Distribution

Traditionally, distributors extended credit to retailers (chemists, pharmacy owners) as a means to build trust and retain business. But over time, this has spiraled into an unhealthy practice, where credit cycles have stretched from 30 days to 90–120 days or more, putting immense pressure on working capital.

Here’s why it’s creating serious challenges:

🧾 1. Cash Flow Crisis

Distributors buy stock from pharma companies or super-stockists mostly on limited credit or upfront payments. However, they don’t receive timely payments from retailers. This leads to a mismatch in cash inflow vs. outflow, resulting in a cash crunch. Many distributors have to borrow to bridge the gap, increasing their operational cost.

🕓 2. Delayed Rotations, Expiry Risk

Holding large volumes of stock for longer due to delayed payments reduces the number of cycles a distributor can rotate their inventory. This leads to slower movement of goods, risk of expiry, and loss in margins, especially for products with short shelf life.

📉 3. Profitability Takes a Hit

With shrinking margins and rising operational costs (like manpower, rent, logistics), delayed payments eat directly into profits. The longer the credit cycle, the lower the profit realisation per product sold.

⚠️ 4. High Risk of Bad Debts

In extreme cases, retailers shut shop or vanish without settling dues. For distributors, this results in bad debts that are hard to recover and often completely written off. A few such instances can wipe out months of hard-earned profits.

🛑 5. Lack of Business Discipline

Widespread credit availability leads to undisciplined buying by retailers. Some purchase beyond their need, leading to wastage or expired stock. It also fuels irregular payment behavior, as retailers get used to delayed payments as a norm.

🔄 6. Stunted Growth

Distributors caught in long credit cycles can’t reinvest or expand. Whether it’s opening a new location, adding product lines, or upgrading logistics, everything requires working capital – which remains stuck in unpaid credit.

🔍 What’s the Way Forward?

To break free from this cycle, the industry needs to take bold steps:

• ✅ Enforce Strict Credit Terms – Limit credit days and enforce penalties for delays.

• ✅ Digital Invoicing & Payment Reminders – Use automation to track and remind retailers of dues.

• ✅ Focus on Retailer Profiling – Extend credit only to trusted and regular clients.

• ✅ Adopt Part Payment or Advance Models – Encourage partial upfront payments to ease cash flow.

• ✅ Create Industry-wide Awareness – Collaborate with pharma associations to drive credit discipline.

✍️ Final Thoughts

Credit, when misused, becomes a silent killer for pharma distributors. It’s time the industry rethinks this practice and finds a balance between relationship-based selling and financial sustainability. Only then can the pharma distribution ecosystem become healthier, faster, and more future-ready.

Do you run a pharma distribution business? Share your thoughts or challenges around credit in the comments! Let's start a conversation toward building a more disciplined and profitable ecosystem.