Credit or short-term financing is the lifeblood of the IT channel in the UK. The past four or five years have seen tremendous opportunities for the channel through selling services and the adoption of cloud computing. However, change in itself brings risk.
Channel partners switching to managed services or implementing complete offerings involving different technologies and vendors need to carefully manage their cashflow. Traditional payment schedules and cashflow models can go out the window.
A change may make good business sense.
Distributors can often provide credit or short-term financing to business partners. Resellers may also turn to banks or financial factoring services but typically distribution is the main facilitator.
Make sure you check out whoever you are dealing with – there is plenty of fraud in the reseller space and not every organisation is what it claims to be.
Is the organisation asking for terms a valid trading entity? Can it actually repay? It is all too easy to be seduced by the sound of a deal that promises much but ultimately delivers little.
Fraudulent operations may even offer to pay for the first few transactions, up front, to build the relationship, only to disappear with product as soon as credit terms have been agreed on subsequent, larger deals.
This has been termed "long firm" fraud, and in the event of a claim being made business partners will lose out if they have not been trading with a bona fide entity in legal terms. Remember to pay attention to small details.
Criminals are always a couple of steps ahead and can be very creative. Due diligence from the start will pay dividends in the end.
A distributor with clear and defined credit management processes will help business partners to grow, without any nasty surprises. A Quality in Credit Management Accreditation (QICM) means a vetting by the strictest independent body in the industry, the Institute of Credit Management.
However, total transparency from all concerned is essential. This means discussing business plans, presenting your forecasts, and providing end-user purchase orders.
Be open about who you are working with, why you are working with them, and what experience you have in a particular market. This can make a difference to the trade credit lines and other credit options on offer.
Don't be afraid to ask questions – and remember to ask the right questions.
If a customer is asking for credit, even just 30-day payment terms, you have a right to query them. Identify the customer's status in law. What are their payment terms – yours might be 30 days, but do they have a policy to pay only in 45 or 90 days? If so, do you still want to do business with them?
Are they prepared to provide references from other suppliers and business partners? Have the accounts been filed regularly with Companies House? Do the business activities of the company correspond with the documents held by Companies House?
Corporate identity fraud is becoming more common, with criminals hijacking the name and details of dormant legitimate businesses, luring resellers into a false sense of security.
Maximising credit through distribution can help you close larger deals that yield better returns, allow you to move into new markets, or otherwise transform your business. The keys to success are open communication, total transparency, and knowing who you are dealing with.
Dee Weston is a credit manager at Avnet
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