Distribution still keeps the wheels of credit turning

Credit is still vital if the channel and its customers are going to reach their full growth potential.

A recent survey revealed a third of SMEs in the IT sector have missed out on business opportunities because of a lack of finance. Distributors have long been a major source of credit for SME resellers but with consolidation taking place in distribution through mergers and acquisitions, the sources of credit available to resellers are being reduced.

Can those distributors left standing do more for SME resellers? And what other options are available if they don’t?

One distributor that has publicly taken the initiative on credit is Exertis. The company recently introduced a programme called Credit Xtra with the intention of doubling the credit limit for more than 1,650 of its SMB accounts. There is also the option to increase the limit further if resellers remain within the distributor’s credit terms.

Mark Reynolds, sales and commercial director at Exertis IT, claims it has “already been able to provide an additional £4.2 million of credit to resellers to enable them to resource their business and service their customers with IT solutions”. He adds that the distributor expects the programme “to offer well in excess of £20 million of additional credit as it progresses”.

He says the Credit Xtra programme is underpinned by the “financial strength and stability” of the distributor and its parent company DCC, and its relationship with Chubb, one of the world’s largest publically traded insurers. Under the scheme, resellers have a dedicated account manager to handle their credit enquiries and can take advantage of flexible customer payment terms, as well as variable payment methods, such as direct debit.

In addition, Exertis can also direct resellers to credit services provided by vendors and can also offer additional leasing options.

While it’s not uncommon for distributors to announce an increase in credit available to their resellers, doubling the amount demonstrates a strong degree of confidence in the future growth potential of SMB resellers.

The Exertis initiative follows a similar move on credit by Tech Data last summer, as the distributor’s UK & Ireland group marketing director Andy Dow explains. “The need for more credit among SMB resellers has been quite obvious for some time – we saw it building up last summer in fact and we put an additional £150 million of credit into the market in June last year,” he says. Resellers were quick to take advantage – especially SMB resellers. “Extended credit lines were provided to more than 4000 of our customers (the extra credit was applied to the accounts of frequent customers automatically) and they have continued to take advantage of the added flexibility those facilities give them to drive sales and business growth.”

Dow believes that it is especially important to offer extra credit at this time of year, when resellers are targeting the peak summertime buying period in education. The distributor has provided extended payment terms to resellers selling to education because schools often need a little more time to process payments, due to the summer break. “We do that every year and it’s extremely popular,” he adds.

According to Dow, more resellers are also taking advantage of Tech Data’s Credit Elevator scheme, which allows them to increase their limit from £5,000 to as much as £300,000 over an 18-month period, provided they meet the spending and payment conditions.

Another option resellers might consider is leasing. This is nothing new, but it’s not something that has gained much traction in the channel over the years, as Jean-Michel Boyer, CEO at BNP Paribas Leasing Solution UK, freely accepts. “Leasing penetration is low in the IT sector,” he admits.

But he argues resellers that lead with leasing by integrating a finance option in to their selling process benefit in two ways. Firstly, in the world of pay-per-month and subscription,

“leasing is a great way to offer customers access to essential technology in an opex manner”.

Payments for the customer are fixed throughout the lease period, which provides certainty and budget predictability – “a comfort much needed in the context of fluctuating currency rates and manufacturer prices”, Boyer notes.

Equally important to a reseller is a reduction in ‘debtor days’ or ‘days sales outstanding’. Typically, SME resellers are forced to wait 40 to 50 days before invoices are paid “which can have a huge (and detrimental) impact on cashflow”. With leasing, when a sale is concluded, the finance company often remits the balance of the invoice within 24 hours of the reseller sending it in.

“This change is a transformational shift which allows the reseller to pursue new opportunities and helps to release extended credit lines from distributors,” he argues.

All of which is true but, to a large extent, many resellers have proven resistant to the attractions of leasing over the years, despite the best efforts of leasing firms to engage with them.

The importance of credit extends beyond the reseller to the customer. As Angus Dent, CEO at peer-to-peer business lending provider ArchOver argues, many tech start-ups that could go on to become the innovative giants of tomorrow “need access to a community of SME resellers and partners that can support expansion and growth”. To fund that growth, SME resellers need access to credit.

“Instead of being held to ransom by distributors, there need to be other funding options available for them to achieve their goals and strengthen their independence,” Dent declares.

Unsurprisingly, he is keen to highlight the benefits of P2P lending, a relatively new phenomenon in the world of financing. “Peer-to-peer lending can provide SME resellers with quick access to the funds they need to boost their growth,” Dent claims. “Rather than having to navigate complex contractual negotiations in return for credit from distributors, SMEs can go to independent investors who can provide them with the cash they need.”

He argues this give resellers  “the freedom to go after new opportunities and ensure a steady cash flow from month-to-month, without jeopardising their essential distributor relationships. When distributor credit isn’t enough, or isn’t forthcoming, alternative finance holds the key to continued growth – credit isn’t the only way”.