With acquisitions among channel players running high, and economic green shoots appearing, there are three impact points; for the distributor and VAR, the credit insurer and lastly, what it means on how the distributor will need to upgrade to a new trading climate.
Consolidation has created a new and emerging landscape. The news of Computer 2000 investing heavily in sophisticated credit is significant for two reasons. It marks C2000 out as an organisation that puts its money where its mouth is and secondly, by doing so, it marks itself out to be the distributor of choice.
C2000’s management has proved to be excellent in identifying opportunities and its business units are focused on the client. The channel is waiting for more news on innovations in its offering in the area of credit and finance.
Carrying the torch
For now, though, C2000 carries the torch and its sponsorship of CRN’s Finance Forum on 24 June marks out its territory as serious channel supporters. I predict the firm will the channel’s most powerful force in the period ahead.
The importance of C2000’s stance cannot be overstated. Their ambitions provide comfort to a channel faced with the uncertainties that go hand-in-hand with consolidation.
The Bell-Avnet merger and Ingram’s acquisition of CCD, in the short term at least, fog things up even more. While Ingram has already made ‘dramatic economies’ (serious culling) to CCD staff, the jury is out on how Avnet will approach Bell’s management structure -- a structure with seemingly more superfluous layers then a Russian doll.
The weeding will have to target the back office. For Avnet to succeed, it will have to retain the good bits, such as the skill-centre of Bell’s credit function and its credit supremo, Eddie Pacey. Pacey is Bell’s unsung hero, championing channel credit not only for itself but ensuring we are all that much more educated about credit.
Whatever happens, there will be a re-visit to credit lines, a programme of credit appraisals. Distributors heavily reliant on credit insurance will get a wake-up call. When they do, they will realise the real importance of the credit manager.
The reason the credit manager has been an ascending star in the last few years is that much of the business generated has effectively been uninsured. So yet again I have to rant on about how the credit manager in some distributors is not a credit manager at all but a commercial manager. I know one credit manager who sells more then most of the sales managers.
In a channel still over-reliant on credit insurance, much will depend on what the handful of insurers in the market do. The good news is that another insurer – Ace Global Markets – has revamped itself and recruited at a high level. They just recruited Stuart James from Euler and already have Martin Jeffrey, formerly a credit assessment chap at C2000. Expect change; that is good for the channel.
The reaffirmation of Ace means, hopefully, innovation. Ideally, we need to escape from the ‘Computer says no’ approach. One key complaint has been that reduction or withdrawal of insurance cover may precipitate business demise. ‘Intensive work’ too often really meant ‘We’re getting out, lads, and now try to continue trading on a downwardly uninsured basis, and also mitigate your loss’. Not good.
We have seen credit insurers being portrayed by PR campaigns as channel supporters. However, consolidation means we probably will see an overall reduction to some bigger accounts. A worry particularly to those VARs recently declared on the acquisition trail, fuelled by debt from factors, banks and private equity.
Lastly, distributors will need to look at smarter ways of protecting the business they do. I can see a wholesale change in the way business is conducted. There will be increasing use of escrow, third-party invoicing, and sales secured by debenture to deal with the uncertainties of credit insurance.
One distributor I spoke to recently is considering dropping credit insurance altogether. In their view, it has proved to be a very costly exercise. Not only did they lose money on the policy, the premium was very high in absolute cash terms. Also, they had to spend heavily on credit staff, systems and procedures.
Given its relatively low level of debt, it would have been materially better off by not having credit insurance at all or insuring just the major risks. Exciting times. Fasten your seat belt.
Nitin Joshi is founder of ChannelMoney
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