Implementing a Zero Debtor Policy through Channel Financing in an MNC

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At Trestle, the distributors approach their respective area Sales Manager (ASM). The ASM asks the distributor concerned for the documents required for opening Channel Financing. On collection of the documents, the ASM checks the distributor’s eligibility before recommending credit/ Overdraft (Refer to Table 2). Once the distributor is found eligible, the credit committee at the head office calculates the Credit Limit of the distributor using a formula....

Once the distributor places an order at Testle’s order management center (OMC), Trestle checks for availability of sufficient funds in the distributor’s CF account. Refer Figure 1. If sufficient funds are available, the order is dispatched from the respective DC and an invoice generated. After the goods are dispatched or in transit, Trestle India sweeps funds (for amount mentioned in invoice) from the distributor’s ‘account A (current a/c)’. If the initial balance in the distributor’s ‘account A’ is zero, it is simultaneously back-filled at the time of sweep (process of transfer of funds) from account B (On the basis of automated standing instructions from the distributor) because the distributor has his funds in ‘account B’ only and the overdraft limit also resided in ‘account B’. During the sweep if the funds in ‘account B’ are insufficient, then the overdraft limit is utilized automatically and the distributor is paid interest and principal amount for utilizing the overdraft facility under CF...

Getting all the distributors on board was a great challenge for Trestle India. Some of the distributors were not interested in this facility because they were not aware about the facility. Also, some of the distributors were afraid of the interest that the bank would charge for providing the CF facility. One distributor of Trestle India, Goel Traders from Punjab (State in North India), was one of those not interested in the CF facility. The firm was under the impression that it would have to go through a lot of formalities to avail of CF. It believed that it would be better to approach the local money lenders even if they charged an interest rate of 24% per annum as there were very few formalities involved...

Exhibit I: Documents Required by HDFC Bank for Offering Channel Finance Facility to its Distributors

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