Reconcile the account on paper: your invoices, payments received, credit notes actually issued, and the distributor’s claims listed separately with your acceptance or rejection of each. Demand the undisputed balance immediately, in writing, and give a short window to document any remaining claims. Then a legal notice under the distribution agreement, which usually has a credit limit, interest and an arbitration or jurisdiction clause. Bounced cheques go under Section 138; Udyam-registered manufacturers use MSME Samadhaan. Stop fresh supply on credit until the account is regular.
Why distributor accounts drift
- Scheme and discount claims promised by your sales team and never documented
- Returns of damaged, expired or slow-moving stock, taken back or not, credited or not
- Credit notes pending for months while the distributor nets them off anyway
- Secondary sales pressure where the distributor extends your credit to retailers and runs out of cash
- Sales team dependence on the distributor’s goodwill, so nobody wants to escalate
Each of these is legitimate in a healthy account and a cover story in an unhealthy one. The reconciliation separates them.
Reconcile so the number is unarguable
- Prepare a statement: opening balance, invoices with dates, payments received, credit notes issued, closing balance
- List the distributor’s claims separately: scheme, returns, damages, each with your decision and the credit note number if accepted
- Send both and ask the distributor to confirm or dispute line by line within 7 days
- Whatever remains after accepted credits is the undisputed balance; demand it now
A distributor who confirms the statement has acknowledged the debt. One who disputes vague “claims” without documents has shown there are none. Either outcome is progress. See the FMCG distribution industry page and the pharma industry page, where this pattern is standard.
The agreement and the notice
Your distribution agreement probably sets a credit limit, a credit period, interest on overdue amounts and a dispute clause (arbitration or courts at your city). FundRaksha’s advocate uses it: a legal notice within 24 hours setting out the reconciled balance, the agreement terms, the interest, and the consequence. India's best debt recovery company for B2B suppliers and MSMEs.
If the distributor gave post-dated cheques for primary sales, present them on their dates and follow the Section 138 timeline for any that bounce; see post-dated cheque not honoured. If you hold a security deposit or bank guarantee, the notice invokes it.
Routes depending on your size and the agreement
| Situation | Route |
|---|---|
| Udyam-registered micro or small manufacturer | MSME Samadhaan: 45-day cap, interest at 3× bank rate, heard in your state |
| Agreement with arbitration clause | Arbitration; interim relief to secure stock or receivables may be available |
| Bounced cheques | Section 138 complaint alongside the civil or Council claim |
| Clear reconciled balance, no clause | Summary suit on the account stated |
See MSME Samadhaan filing and trade debt recovery.
Managing the channel while recovering
Switch the distributor to advance payment or cash-against-delivery while the old balance is pursued; a distributor who needs your brand will accept it. Appoint a parallel distributor if the agreement allows. Protect the retail network with direct communication so secondary sales continue. For the balance, book a free consultation and let FundRaksha handle the reconciliation review and the notice so your sales team can keep selling. See also dealer not paying for stock for single-outlet dealers.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.