Notes for owners · Channel and customer growth
Dealer credit in building materials: how to set limits and follow up dues
A decision rule for setting a credit limit on each building material dealer, plus a follow-up routine that treats collection as part of selling, not a chase left to accounts.
The GullySales team · Updated 17 Oct 2026 · 5 min read
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Give each dealer a credit limit based on how much they sell of your material in a normal stretch, not on how loudly they ask. Then treat the follow-up on dues as part of the sales visit, because a dealer allowed to drift may stop answering. In this trade credit is often a reason dealers buy from you, so the limit is a sales decision before it is an accounts decision.
How do you set the limit for one dealer?
Start from what the dealer actually moves, not what they promise. A workable rule has three inputs:
- Typical monthly purchase from you over the last few months.
- Days of credit you allow, which is the length of time your stock sits with them on your money.
- A safety cap at a share of what you can afford to have outstanding with any single dealer.
Work out the ceiling as monthly purchase multiplied by credit days and divided by 30, so 45 days of credit on a ₹6 lakh month gives ₹9 lakh and 15 days gives ₹3 lakh. Then cut it where payment history is patchy. All figures below are illustrative.
| Dealer | Monthly purchase | Credit days | Ceiling | Adjustment | Limit |
|---|---|---|---|---|---|
| A, pays on the day | ₹6 lakh | 30 | ₹6 lakh | None | ₹6 lakh |
| B, twice late this year | ₹6 lakh | 30 | ₹6 lakh | Halve until three clean months | ₹3 lakh |
| C, new this quarter | Not yet known | 15 | Start small | Raise on evidence | ₹1 lakh |
Write a number against each name, and tell the dealer the number in person, along with how it will be reviewed and what would raise it.
New dealers should start low and be raised on evidence. Our note on credit terms for business buyers covers the general logic; here the dealer's own turnover is the better guide.
What signs say a dealer is stretching?
Watch for these before the dues turn overdue:
- Orders get bigger just as an older invoice goes unpaid.
- Payment comes in round, part amounts instead of against invoices.
- The dealer stops answering the salesperson and talks only to the owner.
- Stock of competing brands appears on the shelf and yours is hidden at the back.
- Cheques arrive late in the day or just inside the due date, every time.
One sign is noise. Three together are a reason to hold the next large order until a payment lands.
Make follow-up part of the visit
The salesperson who takes the order should also have the ledger in hand. Keep it simple: before each visit, print or note the dealer's outstanding amount, the oldest invoice, and the credit left under the limit. Raise it in the first five minutes, in the same friendly tone as the stock check.
A plain ageing view helps the conversation:
| Age of invoice | Action |
|---|---|
| Within terms | Nothing; thank them when it clears |
| Just past due | Salesperson raises it in person or by call that day |
| Well past due | Sales manager joins the next call; new orders limited to what is cleared |
| Far past due | Supply on pause for new orders; owner-to-owner conversation; written plan to clear |
Decide what "just", "well" and "far" mean in days for your trade and write them down, then apply the same table to everyone. A rule you bend for the biggest dealer is a rule the others will test.
For example: a door-frame maker supplying dealers in Guntur
Imagine a maker of steel door frames selling to eight dealers around Guntur. The largest dealer had paid a fortnight late for months. Orders kept coming. The owner never raised it. By the time the outstanding reached close to three months of billing, the dealer was also quoting lower prices to builders on the strength of the owner's money. At that point about ₹14 lakh sat outstanding.
The trouble began because nobody had ever said a limit aloud. The owner went back with the ledger, set a ceiling, explained that new dispatches would depend on a payment landing, and offered a fixed weekday for settlement. The dealer grumbled and paid part. The owner held one order for three days until the rest came. The relationship survived, though the dealer's monthly orders fell by about a fifth for two months before recovering, and the owner accepted that as the price. The rule was the same for every dealer and explained in person, not enforced by an invoice reminder. The maker, the dealers and the figures are invented.
What about incentives?
Salespeople who are paid only on billing will push orders to dealers who are behind. Tie part of the incentive to dues cleared, then look after one quarter at whether the oldest invoices have shrunk and whether any dealer's orders have dropped. A cash discount for early payment can also work when your margin allows; test it on one or two dealers first and see whether the early payers actually increase.
Review the dealer base, not just the dues
Once a year, sit with the full dealer list. Which dealers pay on time and sell well? Which pay late and sell little? Stock, sales and payment behaviour belong on one sheet. That puts the dealers eating your credit beside the shelf space they give you. How to read those numbers is also covered in measuring dealer and distributor performance, and the wider setting is on our construction materials page.
Put a limit beside each dealer's name and mark the ones already above it. Those are your first conversations, and if you want help setting the limits and the follow-up routine, with a dealer and distributor audit to read the whole base, tell us what you need.
