Category One Distributors

This category of distributors abide by agreements; possess high credibility, strong marketing capability, extensive sales network and good capital flow; have the same business philosophy as the enterprises they serve; and have long-term development plans and strategies. With such strengths, they are high quality partners and can be nurtured to become long-term distributors for enterprises.

As a gesture of support to these distributors, enterprises can grant them a credit limit in payment for goods, allowing part of the payment to be settled in cash and providing credit for the remainder.

Category Two Distributors

The sales capability of these distributors is relatively weak, yet they have good credibility. Support from manufacturers is often required.

In dealing with this category of distributors, manufacturers have to provide support and guidance such as sending sales representatives to assist them in developing the market, boosting their sales capability and confidence. Preferential treatment such as extending their credit period or lowering their minimum order requirement may also be considered.

Category Three Distributors

These distributors possess good sales capability, yet their credibility is low. Hence, there are risks in dealing with them. They must be closely supervised under a set of stringent distribution policies. In the manufacturer's initial stage of building sales channels, these distributors are of great value to the manufacturer in capturing market share with their strong sales capability. Yet, since the risks of working with them are high, they should be restricted to play a limited role and not to be relied upon too much in the distribution process.

In settling payment with these distributors, cash transaction should be used as far as possible. Yet, backed by their strong operation capacity, these distributors are in a good position to bargain with manufacturers for more favourable payment terms. If they really have problems with cash payment, manufacturers can consider allowing them to pay the bulk amount in cash yet requiring them to settle the balance before the next batch of goods is delivered. The amount of outstanding payment allowed should also be capped. If payment is overdue for two consecutive months without good reasons given and warnings have been issued two months before, manufacturers should cease supplying goods in the third month. Other methods should also be used to recover the overdue amounts.

Category Four Distributors

These distributors have poor sales capability and low credibility. It is best to avoid working with them or else manufacturers may find themselves bogged down in piles of bad debts. Worse still, some distributors may maliciously run away with the merchandise, causing great losses to the manufacturers.

An advisable strategy to deal with these distributors is to insist on payment on delivery and payment by cash.