Finance could ease debtor days burden

A front page story of CRN earlier this year came as a bit of a shock. Perhaps it shouldn’t have, but to read in black and white that the majority of SMEs with fewer than 50 employees are waiting an average of 152 days to be paid by their customers, actually did catch me unawares.

According to the article in comparison, mid-sized firms – those with 50 to 249 employees – saw debtor days increase from 48 in 2005 to 51 in 2006. This puts the SME IT suppliers market under an enormous amount of pressure and unless something changes could mean we see an unusually high number of insolvencies this year.

For many of our business partners, reducing debtor days is one of their primary reasons for choosing to integrate finance into their sales cycle, so I like to think we have a good understanding of the issue. But these latest figures are a real wake-up call that there are still thousands of businesses struggling needlessly with late payers.

I am certainly not suggesting that finance will stamp out debtor days once and for all. Indeed, one of the truths of IT finance is that it cannot turn a bad deal into a good deal and in terms of what can be done after the event, once the sale has been made, finance can offer only limited help.

Although VARs can defer their debtor risk they do so at a price. Instead, resellers should be looking to offer finance as an integral part of their sales process, tackling the issue of payment upfront, ensuring cash upon customer acceptance and adding considerable value to the sales proposition in the process.

Reducing debtor days is one of the most widely understood benefits of finance and leasing. No matter how sophisticated the industry may appear to have become, there is still the underlying truth that finance helps to reduce debtor days and debtor risk.

But that’s not all. Pairing up with a finance partner at the outset of a sale can enable VARs to access useful and often enlightening information about a potential customer’s financial health. A finance partner can better qualify a proposition through detailed financial analysis and credit reviews, further reducing the risk of payment issues into the longer term.

Reducing risk is a major reason for choosing finance, but it isn’t the only one and finance certainly shouldn’t be viewed as simply a defensive mechanism or a system purely to help combat late payment.

Those businesses that offer finance as an integral part of their sales process – including an increasing number of SMEs – do so because both resellers and customers benefit from a number of financially positive outcomes.

The IT sales process is about adding value, and finance offers the opportunity for customers to pay over the useful life of their equipment, to upgrade to the latest technology – often with no addition to their monthly fee – and to maintain their cash flow.

For resellers, the benefits are just as plentiful, including the ability to reduce debtor days dramatically; to create long-term relationships with financially healthy customers; to offer added-value services and to identify and create reliable revenue streams into the longer term.

SMEs are short on resources and often lack the time to chase bad payers, sliding further into debt with every day that passes. Finance offers a way to tackle the problem at source, easing the burden of debtor days and ensuring payment today.

Phillip White is managing director of Syscap.