The Indian pharmaceutical industry is one of the fastest-growing sectors globally, known for its innovation, global exports, and essential role in healthcare supply chains. However, despite strong demand and continuous expansion, pharma companies consistently face challenges in timely debt recovery and credit risk management. Long credit cycles, delayed payments, distributor defaults, and regulatory complexities often create financial strain that impacts operational efficiency.
To maintain profitability and ensure smooth cash flow, Indian pharmaceutical businesses must adopt a strategic and expert-driven approach to managing both collections and credit risk.
The pharma sector operates in a unique payment ecosystem, deeply influenced by supply chain dependencies, distributor relationships, and market competition. Delays in payments can disrupt everything—from manufacturing schedules to market availability.
Pharma companies often extend credit for long durations to wholesalers, stockists, exporters, and hospital networks. A delay of even 15–30 days can significantly impact production, raw material procurement, and distribution.
The industry depends heavily on distributors and channel partners. If distributors face financial instability or mismanagement, payments get delayed, leading to mounting overdue invoices.
With so many brands competing for shelf space, companies may offer flexible payment terms. Without a strong collection system, these terms become risky and lead to cash flow bottlenecks.
Price controls, policy changes, and documentation challenges can sometimes create disputes or slow the payment process.
Effective credit risk assessment in pharma is not just a financial function—it’s a strategic one. The right credit decisions ensure companies partner with reliable distributors and customers who honor commitments.
Before extending credit, pharma companies must evaluate:
Financial health
Compliance track record
PAN/GST checks
Past payment patterns
Market credibility
This prevents high-risk partnerships.
Real-time review of outstanding dues, credit limit utilization, and order frequency helps in predicting potential defaults early.
Frequent cheque bounces, sudden order drops, or disputes can indicate financial distress. Detecting these signs early ensures corrective action before risks increase.
Pharma companies that adopt digital tools, AI-based credit scoring, and analytics platforms make sharper, faster decisions, reducing exposure to risky clients.
It might be worthwhile to invest in an internal debt recovery team and an internal lawyer if pharmaceutical businesses have a wide buyer base and are national in scope. Since these debt collectors are knowledgeable about the nature of the debt, they will have a higher chance of recovering the There are credit and recovery teams all around the nation that answer to the national manager of credit management and recovery. Numerous organisations with a nationwide presence in India have effectively implemented this approach.
Predictive modelling and automated dunning are being used by businesses in this industry more and more to assist them expand their debt collection reach. Buyers may make payments simple and avoid delays by using mobile apps and internet payment links. High days sales outstanding or low receivables turnover ratios are detrimental to a company's performance for two main reasons, according to SES in the report: first, they block working capital, which increases operating costs and requires additional capital; second, they may prove to be risky as they may eventually require a write-off, which would negatively impact earnings.
Divergence in the ratio of accounts receivable turnover can be ascribed to a variety of things, including the kind of customer, the company's negotiating position, the quantity of suppliers, the company's credit policy, and its geographic reach. For instance, the receivable cycle is longer but the cost of distribution is lower if a business supplies products to hospitals. Additionally, because generics are highly competitive, innovators have greater negotiation power than generic players. Multinational corporations manage their debtors more effectively than Indian family-run businesses do. Since most Indian business comes from overseas, its receivable cycles cannot be compared to those of Indian subsidiaries of multinational corporations that solely operate in the domestic market.
According to a representative of a significant Indian pharmaceutical company who wished to remain anonymous because he is not permitted to speak to the media, the receivables period in the US is 60 to 100 days, while it is more than 100 days in emerging markets like Latin America, Russia, and Africa. This affects the receivables turnover ratios of Indian companies. However, this is the nature of business and local customs vary. Higher exporting companies have a receivables turnover ratio that is below average, but the effect of this is not consistent, suggesting that no meaningful pattern can be identified.
The cycle of accounts receivable affects a company's cash flow and, hence, influences the values. However, the ratio of accounts receivable to total assets is merely one measure used to predict a company's future performance. Other aspects that investors need to be aware of include the company's capacity to increase profit margins and product mix.
For the benefit of shareholders, companies are required to reveal their credit policy, period, and improvement on a yearly basis, at the very least in the annual report. In 2022 and 2023, the value-added output of Indian pharmaceuticals is expected to grow at a rate of more than 6% per year, owing to the continued Covid-19 immunisation campaign, a recovery in non-Covid-related medical procedures, and a rise in the export of generic drugs. Due to high material and transportation costs, medication companies will still have pressure on their gross margins in the first half of 2022. Pharmacy and wholesalers in the country continue to make modest but steady profits.
The most successful pharma companies integrate both functions for a seamless financial ecosystem. Here’s how the combination helps:
Prevents defaults through accurate customer evaluation
Speeds up collection with structured follow-ups
Reduces bad debts through early intervention
Strengthens partner accountability
Improves profitability and cash flow predictability
In a highly competitive industry like pharmaceuticals, this integration ensures financial resilience and sustainable operations.
Debt collection and credit risk management in the pharma industry require domain-specific expertise. Partnering with a professional agency brings:
Strong negotiation and communication expertise
Legal and compliance support
Global network for international pharma recovery
Advanced credit intelligence and reporting
Protection of brand image through ethical recovery
Faster recovery of outstanding dues
A specialized partner such as MNS Credit Management Group offers tailored solutions for pharmaceutical businesses looking to reduce losses, recover overdue payments, and strengthen credit decisions.
FAQs
1. Why is debt collection important for the Indian pharmaceutical industry?
Debt collection is essential in pharma because long credit cycles, distributor delays, and high market competition can affect cash flow. Timely collection ensures uninterrupted production, procurement, and supply chain operations.
2. What makes credit risk management crucial for pharma companies?
Pharma companies extend credit to distributors, stockists, hospitals, and exporters. Strong credit risk management helps assess their financial stability, reduce default risks, and maintain profitable business relationships.
3. What challenges do pharma companies face in recovering payments?
Common challenges include distributor financial instability, documentation disputes, delayed approvals, regulatory complexities, and competitive credit terms offered in the market.
4. How do debt collection agencies maintain relationships during recovery?
Professional agencies follow a negotiation-based, ethical approach that focuses on resolving issues amicably without damaging long-term business relationships.
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