An Analysis of Distributor Response to Credit Policy Change: Evidence from Pakistan

Abstract

This study was aimed to find out whether credit policy regime has any relation to the sales volume, a change in credit terms can affect the interests of firms and distributors. For this purpose, I selected three food processing companies, namely Shezan International, Murree Brewery, and Shakarganj Food Company. As the credit terms have direct relationship with the distribution function, the distributors of these companies located in Islamabad and Rawalpindi were interviewed to collect primary information regarding credit policies of abovementioned companies.   In order to have uniformity, a questionnaire was developed and all the interviewees were requested to provide requisite information. The information so gathered was analyzed and following conclusion drawn: The rate of discount has direct relation with the savings of the company but an inverse relation with distributors’ cost of giving up discount. As the credit period increase, the possibility of bad debt losses increases. This is detrimental to company but advantageous to the defaulting distributors. Regime of credit policy has direct bearing to sales. As the credit terms are made more attractive to distributors, significant increase in sales is likely to occur. Tight credit policies impair sales level.