Industry gets tough on credit
Vendors are to be paid strictly, adhering to terms
Payment terms are shorter than before
Renegotiation of credit terms is getting more common as the economic downturn bites more deeply into margins and the industry talks tougher on credit.
David Ellis, director of e-security, professional services and training at security and internet-focused distributor Computerlinks, said: “Vendors have become far more strict with payment terms of late, and that in turn puts pressure on distribution.”
Resellers must work to keep the lines of communication open, Ellis said, especially because a number of vendors are asking for shorter terms than before.
“We always try to be as flexible and accommodating as possible for our channel,” he said. “We offer a number of other programmes, including leasing and so on, to relieve some of the pressure resellers may be experiencing in regards to budget in the short term.”
“We are having to pay the vendors very strictly according to terms. In general, it is shorter terms than before and this has happened with a number of vendors – more than one.”
Ellis did not wish to comment any further because “it is a dangerous area and confidentiality must be adhered to”.
Dave Phizacklea, managing director at JoraPh Consulting, an independent Oracle consulting and managed service provider, said that although bad debt issues were happening before the economy actually turned they appear to be multiplying.
“With the catalyst of an economic slowdown, defaulting on payments [has] started to become a trend,” Phizacklea said.
JoraPh has already started to introduce measures that may help, deciding to combine invoice discounting with bad debt protection, he said.
“It is something that JoraPh has previously resisted and is still an action for which I hold reservations. It holds cost implications to us but in these uncertain times it is better to be safe than sorry,” Phizacklea said.
Even before the economic downturn was confirmed, JoraPh in some cases has helped businesses extend their credit – in one case for as long as 154 days prior to payment, Phizacklea said.
Jon Sidwick, managing director of audio-visual distributor Maverick, agreed, saying that more resellers are wanting to discuss their credit limits with the distributor or explore its credit elevator programme.
“It seems that there is real pressure throughout the channel with a tremendous focus on the ability to finance business not only deliver and support a solution. We are also finding the credit funnel being pressured from a vendor perspective,” Sidwick said.
He said credit strength vis-à-vis distribution is increasingly under scrutiny and adding to what were already quite complicated vendor channel policies.
“Maverick is focusing on working hard to maintain credit limits through proactive schemes such as the credit elevator programme,” Sidwick said. “We understand that during challenging times we have to work hard to keep product flowing through our resellers to maximise on the opportunities still out there.”
Matthew Gower, UK and Nordic vice-president of sales at Avnet Technology Solutions, said customers appear to be taking longer to pay their resellers.
“We are seeing, as predicted, an increase in end users applying pressure on Business Partners from a credit perspective,” Gower said.
“Extending payment terms is not the only solution and certainly not always the best long-term solution. We are encouraging Business Partners to talk to us to consider their options in more detail to find the right financial solution.”