Recently, I had a conversation with the managing director of one of our resellers who had just placed a large order with us, the subject: credit terms, more specifically the companys credit limit.
The conversation followed a familiar path, leading to the curt end to the conversation and abrupt termination of the call by him, and my deep sigh of resignation in response. My resignation because I was merely applying Blackrocs credit control policy, which I believe to be fair and responsible. Having said that, the following views are my own, and are not necessarily those of Blackroc Technology Ltd.
"I would stress that the majority of channel customers have a responsible attitude to their finances."
It never ceases to amaze me that many traditional AIDC VARS seem to think they have a right to whatever credit limit they need to support their next project (irrespective of its size) and take any issues with this at a very personal level. The source of this problem lies partly with manufacturers, who handed out large credit limits to many of these companies before pushing them in to the channel when their route to market changed from direct to indirect. Indeed many of the manufacturers, facing their own squeeze on credit policy, have timed the movement of these accounts in to distribution in order to avoid the task of slashing credit limits. The setting of an appropriate credit limit has therefore been left to the distributor, who has to endure the pain of re-educating the VAR as to the way the nonmanufacturer protected world of commerce actually operates. Unfortunately in this world, most companies have to manage their own risk and finance their own projects. Responsible attitudes to finance I would stress that the majority of channel customers have responsible attitudes to their finances and will accept that a credit limit set by the distributor is going to be based on a sound financial assessment of their current balance sheet, recent years financial performance and payment history. This has to be the starting point if any further negotiation is required and I suspect that like our company most distributors are willing to discuss further financing for larger projects or where spending is likely to hit a peak period and some flexibility is required. The key to these negotiations is that the channel customer accepts from the beginning that the ap in credit requirement is their responsibility. Any additional arrangement provided by the distributor is carried out with a great deal of goodwill and trust, the distributor taking a partnership approach to the problem of financing that particular deal and expecting the channel customer to do the same.
"Many channel customers, especially those in start up situations or those used to mainstream IT business, give a great deal of thought to how they will finance large deals or rapid increases in business activity."
Many channel customers, especially those in start up situations or those used to mainstream IT business, give a great deal of thought to how they will finance large deals or rapid increases in business activity and
are appreciative of distributor support but the point is this they dont EXPECT it. They are also open book when asking for distributor support and are only too happy to provide basic up to date information such as management accounts to facilitate this.
The need for cooperation
Conversely there are AIDC VARs who, when they wish to place a large order, insist that their own low credit rating is the distributors problem not theirs.
They are unwilling to part with management accounts, unwilling to discuss part-payment (even in return for early settlement discount), unwilling to ask the end user for stage payments, unwilling to give bank guarantees and unwilling to consider finance leasing, etc. The very fact that they have been asked to do any of these things is often taken as a personal insult by the business owner rather than appreciated as
good business practice.
Basically, they wish to place an order for which the distributor has to take all of the credit risk and all of the financing costs. Of course dont forget that they also want all this for the very lowest price!
The position here is clear. Their balance sheet is their own responsibility, their cash flow is their own responsibility, and any forethought of how to finance their project is also their own responsibility.
Weak balance sheets=low credit rating
A particular curiosity of mine are those companies that insist they should receive a large credit limit while at the same time removing almost all the profits at the end of their financial year by way of large cash dividend pay outs. There is nothing wrong with this (it is up to the owners to decide how they wish to treat profits) but the disadvantage of such a policy is that it often results in a low credit rating because the balance sheet is so weak. These business owners need to understand that theycant have their cake and eat it.
So my final message to channel customers is this. If you want a much larger credit rating then please improve your balance sheet, increase your profits, increase your turnover, always pay on time and above all please treat your distributor as a partner. The local cash withdrawal machine we are not.
The role of distribution
My final discussion point is closely linked to the preceding topicthe role of distribution in the allocation of irresponsible credit limits.
There have been many occasions recently where a distributor has allocated a wholly unrealistic credit limit to a VAR in blind pursuit of a large order. I can think of one particular circumstance where a long time VAR, with an industry wide ZERO credit limit, was granted a credit limit in excess of 100,000 for a particular order. This situation does a great deal of disservice to the channel as a whole.
"If distributors allocate appropriate credit limits to these rogue companies then they will not be able to finance their hit and run business"
Channel customers who have a poor payment record over a number of years, and telltale poor balance sheets are often in that position because their companies are badly run. They are often the very same companies who walk in to a project mid way through sales negotiation (or worse at the death) and cut the margins to the bone just as a cash flow exercise to pay the next bill. The channel would be better off without these companies. VARs because they can compete with other VARs who run their business in a responsible manner without fear ofdesperation-driven pricecutting. Distributors would be better off because they would not be pushed in to the tricky decision of taking a huge credit risk or losing an order that they may well have worked hard for with other channel customers.
"I guess this article will provoke a number of reactions from the channel community but I would emphasise that most channel customers are great to work with."
If distributors allocate appropriate credit limits to these rogue companies then they will not be able to finance their hit and run business, and natural selection amongst VARs would be allowed to take place.
I guess this article will provoke a number of reactions from the channel community but I would emphasise that most channel customers are great to work with. They have a partnership approach, not only to finance but also many other issues, and Im very appreciative of the business they have placed with us to date and the business they will place with us in the future.
Martyn Broadhead - is Sales and Marketing Director at Blackroc Technology Ltd and has over ten years experience in the AIDC industry. Blackroc Technology, based in Stafford, is the UK's fastest growing value added distributor of AIDC (Automatic Identification and Data Capture) technologies and products. These include RFID, Industrial RF LANs, rugged mobile computers, hand held terminals, bar code scanners and printers. The company also provides professional services and integration to the channel including RF site surveys, commissioning, wireless security set up, wireless support contracts, RFID integration, and a rapid design and manufacture service for integrating technology and interfaces to existing manufactured product. Blackrocs customer service level is regarded highly by its customers, and vendor partners.