With the UK in the grip of icy weather, the channel is also facing a potential freeze of a different kind, brought on by the VAT increase in January.
Much speculation has focused on the general effect on spending patterns, especially on how reasonably small hikes in prices might tighten purse strings. For the channel, questions should be asked particularly around how the increase will affect credit and supply chain operations.
The general prognosis from the financial sector, I hear, is that the retail world will receive a short-term boost as consumers bring forward spending ahead of the change. However, this clearly suggests that fiscal weaknesses are stored up for 2011 as customers rein in spending post-Christmas.
Previous recessions and other challenging times have taught us the importance of credit to the channel. Credit oils the wheels of commerce, particularly when times are tough. Sadly, when credit is needed most, it is often hardest to come by.
Cash flow remains one of the key challenges facing channel organisations, particularly those at the smaller end of the market, and credit is the single most important mechanism for tackling this issue.
Following the VAT announcement, a number of companies announced they would be cutting back on credit to their distribution partners.
While this approach is understandable given the scars from the recent downturn, it is ultimately a strategy which may backfire and prove counter-productive.
However, the coming months represent a significant opportunity for channel organisations that consider the longer-term picture and appreciate the potential damage that may be caused by short-sightedness or panic measures.
While some organisations will be reducing credit, now is actually the time to give business a shot in the arm by extending credit to partners.
There is another, less tangible facet of business at risk here, and that is the notion of trust.
Unlike credit terms, there are no figures that can be attached to the value of trust between partners. Offering credit is a vote of confidence: a powerful statement that a company has faith in its partner's business and its ability to deliver.
Investment in partners during tough times will only serve to strengthen those relationships and deliver rewards during less austere times. Companies that maintain a robust credit line to partners may actually be able to grow their businesses in spite of the slowdown by attracting new partners.
Those companies that cut credit in light of rising VAT and a subsequent slowdown may be faced with serious channel shrinkage. While these companies may prefer to reduce their risk, and be willing to absorb some channel decimation as a result, those companies may well struggle to regain partners when recovery sets in.
Long-term business growth may well have been sacrificed for short-term peace of mind.
There is no doubt that it takes a brave company to maintain or improve its credit offerings during tough times, but the alternative is surely less palatable. Cut credit and you risk freezing out partners, shrinking your channel, damaging valuable relationships and slowing down business.
Extend credit and you allow your partners to grow and thrive while sending a strong message of confidence to new and existing partners.
Jeffrey Chao is founder and director of international business at Tp-Link
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