Partner Credit Crunch

March 19, 2009 at 3:19 am Leave a comment

By Tim Lowe

Every day the news is full of information regarding the worldwide financial and credit crisis.  While the economic “downturn” is affecting every aspect of IT business from overall sales to an increased emphasis on green computing, the reduction of available credit is a fundamental business change that has the potential to drastically change the IT channel model. While it’s not as sexy as a headline describing a looming depression, if partners are unable to buy products, they can’t sell them!

We are already seeing a drastic reduction in the available credit, with IBM Global Financing terminating a program that provided multivendor reseller financing. While distributors claim to not have reduced their lines of available credit, as the economy takes its toll on VARs, we will definitely see distributors increase their vigilance in reviewing open lines of credit. And the smallest VARs that rely on credit card and home equity financing have seen those lines  arbitrarily reduced or terminated with no review of the VAR business financials. This is not only affecting smaller VARs., we hear reports of $100M+ partners reviewing their available credit and looking for creative financing. The Channel Insider 2009 Market Pulse Report, a biannual study of economic activity and key performance indicators of the North America technology reseller and services channel, indicates  over half of partners surveyed are concerned with tightening credit and payment terms.
To date, most vendors have focused on extending financing plans to end users. Extended terms and % financing as well as attractive lease terms have been announced by most major manufacturers. But this only addresses the end user part of the channel financing equation. An enhancement to agent programs, where the manufacturer carries the credit risk and pays the partner a sales agent fee, will enable many partners to consummate deals that otherwise will either go direct or to another manufacturer. As vendors push the channel to carry more of the burden of the sales cost, which is typical in economic tough times, vendors may have to arrange for more partner financing. Most vendors are focusing on supporting their distribution partners with extended terms or programs to enhance the available credit for partners.

Amazon Consulting can help you with enhancements to your agent or influence model, as well at an overall update to your channel financing model.

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