Inside info is the key to good management

By working on internal reporting systems resellers can improve vendor relationships and avoid financial trouble, says Nitin Joshi.

Stupendous ineptitude at management level remains the principle cause of channel business failure.

Of course, the signals are seldom spotted; when calamity comes knocking, directors greet it with surprise and ask whether they can turn it into an opportunity.

But mismanagement is not the only cause. Some blame bad debts, loss of market, margin erosion and - now embedded into corporate folklore - the effects of 11 September. Removal of credit insurance is another classic.

I think that a lot of value-added resellers could give up their day jobs and run a master class in How to be a Credit Delinquent.

The UK channel is a simple one, supported by a few companies. You don't want a bad payment history; most trading partners will hear about it sooner rather than later.

I've dealt with more insolvent resellers than I've eaten chicken tikka masalas, but I still ask myself why they collapse.

Why are resellers unable to put in place good management and information systems? Why can't they contract important end user deals? Why don't they exercise prudent credit control?

The other day I came across a reseller that flogged a cartload of IBM ThinkPads to a credible purchaser with an impressive credit card. The reseller didn't bother with the usual searches.

The pleasure of closing the deal soon seemed misplaced, when the customer invoked 'clawback'. The card was, of course, a forgery.

I'll tell you a secret. The biggest favour a reseller can do for itself is to smarten up its internal reporting systems. By doing this, and by delivering quality information, resellers can improve trading partnerships.

Distributors Computer 2000, Ideal Hardware and Azlan have long canvassed for resellers to improve in this way.

In simple terms, the path to glory has five milestones:

Get it on contract
This avoids disputes and speeds up payment.

Credit control
Set up a credit policy. Screen all customers and collect outstanding payments promptly.

Management and information
Know your sales ledger, bought ledger, stock and bank position. Produce monthly management accounts.

Revenue is vanity and profit is sanity
Chasing turnover will only result in an unwieldy and costly infrastructure. Focus on margin.

Factoring and invoice discounting
This has been the fuel for resellers in recent years. Choose the ideal partner for you. There are plenty of them in the marketplace.

Nitin Joshi is a partner at credit firm PKF's recovery and insolvency practice.