Change in Market dynamics thru modified credit offtake and other path breaking actions

Explore how a leading agri-commodities trading and processing company overcame complex market dynamics and cash flow issues by revamping terms of trade, implementing robust planning, streamlining credit policies, and introducing a daily pricing mechanism.

The company was in the business of trading and processing of Agri Commodities. It was operating in extremely unorganized market where the prices were changing very frequently for each deal throughout the day in different geography markets, states, cities and towns all over India. The terms of the deals were also widely different, in different states and markets with no correlation or valid reasons for the wide variations. The market dynamics of Agri sector are complex and credit offtake has significant impact on this sector. The credit terms were ranging widely between 20 days to 140 days without any valid reasons for such huge difference. Changes in credit offtake can also lead to changes in market dynamics by impacting behavior of various stakeholders in the agriculture value chain.


Due to the above uncontrollable and market driven factors, it was difficult for the company to project all financials like revenue, profits, Cash Flow, forex rates/period, even with 50% probabilities. The P2C cycle in trading was around 35-75 days and in processing segment it was around 100-180 days based on prevailing market condition. Given the huge mis match in Cash Flow, it was very difficult to operate within funded and non-funded bank limits at times forcing company to avail additional facilities at high cost and deferred import commitments at high cost with adverse forex impact. During this period, Cash Flow was also impacted by project payments and retail launch as well.   


A revamping of terms of trades were undertaken in all areas like sales, pricing, credit terms, purchase terms, etc., to evolve better solutions to address the cash flow issues.  

  1. Robust planning for different products and geographic areas was introduced in purchase of raw materials and sale or processing of products. In view of un-predictable and seasonal nature of markets, lower than expected improvements could be achieved in these areas.
  2. Introduced debtors’ policy to streamline the credit period. However due to varying conditions in different products and geographical markets, the company had to frame different policies for different products and different geographical markets. In fact, when the average credit period exceeds the business cycle, the company becomes financier to the customers and they enjoy credit facility by not required to approach their own bankers. As the credit period was part of commercial deal done by the traders, the customers and middlemen were immensely benefited by not paying extra for excess credit period. Amidst the huge protest from sales team who were accustomed to unorganized way of working driven by market and with the threat of sales likely to come down drastically from sales team, new credit policies were introduced by buy-in and with sign off from all concerns like, sales, marketing, finance and approved by the management. The results of this action were astonishing and average period in trading segment reduced from 65-67 days to 35-40 days and in processing segment reduced from 115 days to 67 days making it possible for the company to operate within the bank limits, save on interest/Forex cost and improve profitability. The revision in credit policy change the whole land scape of market due to sizeable impact of company’s presence in the market. This helped the company in substantially improving cash flow, get better purchase pricing, periods, etc., negotiate better terms in bank borrowing, reduction in interest and forex cost, and brought huge discipline in the all commercial terms and working of the trading and sales staff.
  3. Buoyant by the success of the introduction of new debtors’ policy, the company took another bold and historic step in introducing the daily pricing mechanism in the market.  For each products and geography, the company introduced the announcement of daily prices of products in the morning by informing to the brokers and customers and putting into company’s website. The market was surprised and taken aback by this historic step which was never even thought of by the market players predicting the possible failure of new practice. The transparency and discipline introduced by the company slowly found the acceptance in the market and the market players started using this prices as benchmark for each day’s trading activity. It put huge break into unscrupulous and huge profit-making habits of the middlemen who were playing tricks on both the sides. This also helped the company to gain leadership position in the market and boosting its brand value as well.


The above measures brought radical changes in the behavior of the market more than materialistic changes making it more organized, disciplined, predictable, avoiding all unscrupulous activities and getting more respect from the Govt authorities and overseas suppliers and customers.  



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