Every game has its own rule and it is the responsibility of players to maintain a code of conduct and utmost discipline so that there is a room for everyone to survive and prosper. But sadly it is becoming increasingly evident that instead of working in cohesion, a lot of these players are working in isolation, thereby leaving themselves open to a whole host of problems.

Just like every other industry, the IT vertical too is witnessing a lot of unhealthy business practices, which leads to an imbalance in the entire channel chain. And in most cases it is the smaller partners at the bottom of the channel pyramid who are at the receiving end.

These unhealthy practices may be in the form of vendors and distributors dumping stock with the partners by way of offering them lucrative discounts and other schemes or partners overlooking their credit limits. Here are some of the most common business traps that partners fall into in their quest of increasing their topline. Needless to say, these should be avoided as they can have long-term repercussions.

Malady: Absence of a uniform credit policy
Symptoms: In a value chain, the vendor in association with the distributor, dumps goods on the partner who has to make the payment in cash. Later it is this very sub-distributor who has to sell the product to another reseller on credit. Often these resellers delay their payments either due to delay from the customer's end or because they have other expenses to meet. In turn the sub-disti's payment is stuck. This happens because a uniform credit policy is not implemented in the spirit by the dealer.

Talking about this malady, Ambareesh Dixit, Head-Business Communication Products Broadcast and Professional Products Division, Sony elaborated, “There are certain reseller partners who handle various government, corporate and large accounts and at times when these customers delay their payments (ie make payments after a gap of four to six months) the partners fall short of cash in hand and correspondingly delay payments from their end as well.”

Side effects/results: Not sticking to the credit policy can lead to a number of complications in the business. Some of the side effects are cheque bouncing and bad debts. Besides, it leads to irregularity in the business churn. If this happens regularly, the partner runs out of liquidity in his business.

Sharad Agarwal of Indore-based Pioneer Computers stated, “Every year it is because of such unethical practices in the business that we face bad debt problems. This loss is almost
25 percent of our revenues.”

Jodhpur-based Arvind Modi, CEO, Bits & Bytes mentioned, “Having a good credit policy makes all the difference. All one needs to do is be disciplined otherwise surviving becomes difficult. The policy has to be formed and implemented in the same spirit. But often because of sales pressure people tend to forget the rules.”

Remedies: Discipline is the key to addressing this issue. A credit policy has to be streamlined and should be uniform. Ideally a 14-21 days credit period is good enough for the industry and a fair one that should be adhered to. In addition it is very important that every partner is registered with an association or body so that their customers who may have defaulted or do not hold good reputation in the market is spotted easily.

Modi sighted another remedy to the problem. “One can take a post dated cheque from the concerned party well in advance at the time of billing and this will put pressure on the reseller who in turn will ask their clients to make payments on time. This is because the credit period differs from vendor to vendor and product to product.”

Malady: Month-end dumping
At the end of every month, vendors and distributors offer discounts to partners to clear inventory. For eg laptops are offered at Rs 1,000 lower than their usual price. To grab better margins, earn handsome profits or at times to achieve their target, the partner falls into a trap and ends up overstocking (ie accumulating more goods than he can sell in the market).

Again this happens owing to two reasons, either the vendor or the distributor resolve to reach a particular growth figure and further pressurize the partner by dumping stock in his godown or because the partner in order to attain the number one spot in the industry and for fame, ends up overstocking.

Side effects/results: Overstock-ing in the first place adds to pressure on a part of the dealer and leaves before him unrealistic targets. He finds it difficult to achieve the target in due time and thus gets carried forward.

Again stocking more than what he can actually sell in the first place takes away liquidity from his business and he has to further ensure that every product thus bought is sold. Given the pace at which technology changes and the speed at which people want to grab the latest offerings, selling the old models then becomes a Herculean task.

Once dumped, there are other headaches in the form of replacement, DoA and warranty issues that has to be dealt by the partner and under no circumstances is welcomed by the partner. To sum up, it leads to chaos both in the mind and the business of the partner.

To this, Modi opined, “The problem with month-end dumping is that the level of stock goes up due to too much pressure of schemes and other incentives that are offered to the partners. This pressure gradually becomes a part and parcel of the game.”

Agarwal of Pioneer Computers added that vendors often keep pushing dealers and dealers have no option but to give in to their demands. Many a time, this rejection from one dealer becomes a gain for the other. “Recently a vendor offered my company products at Rs 1,000 lower than the usual rate. We did not buy it but our competitor did and this affected our business negatively as this competitor sold the stocks at prices much lower than what we were offering.”

R Mahesh, CEO, Ozone Computers, Coimbatore added that in case of dumping of stocks, dealer has to realize the fact that how much a market can take so that he does not get into over distribution. If a vendor or a distributor puts undue pressure then the dealer should have the courage to say no to that particular vendor or distributor. He has to learn to say no to orders. They need to understand the tricks of the trade.

Puneet Datta, Senior Manager Marketing-Business Imaging Solutions, Canon denied that vendors force certain targets on the partners and while buying they all they need to keep in mind is the capital outflow and inflow besides envisaging certain profits out of the stock they plan to buy. “Every partner is aware that technology is changing. Besides the resellers today have multi-branded outlets and they are very well aware of the stock pressure they can take. A smart businessman knows when to take a call. Gone are the days when the partners were not aware and took decisions hastily.”

Dixit of Sony added that dumping is never forced by the vendor and is always a give and take relationship.

Remedy: One of the solutions to this problem is that once in every three months, the partner should stop stocking. The partners should also tell his distributor or vendor to either extend the credit limit because it would later lead to payment defaults. “long term player will never get into undue pressure and thus will survive and be able to do business as per his own terms and conditions. One should take stock keeping in mind their capital limit, said Datta.

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