Here Comes The Next Big Pain For Channels- Financing

The unethical e-sale has come to a halt with all the e-selling portals has refused money-back for electronic goods. Also, one the solution side, the cloud is still a distant dream as the numbers has not affected the storage or service business in many of the channel organizations.

Besides this, the latest challenge for the channel fraternity comes in the new and unpredicted form-Financing. Currently there are two ways where any channel partner gets financed- Finance by financial institution and finance by non-financial firms. Banks both private and government-owned will be an example for the former while the funding by distributors, vendors or other channel partner themselves in the process of the billing is a classic example for the latter. The funding from the non-financial agencies in the IT sector has started reducing the money-flow as they, being the part of the industry, knew the hardships faced by the others. However, the financial institutions which were in good terms with the channel fraternity has started crossing horns.

The latest addition in any channel partner’s list of headaches besides filthy competition, unethical e-sale, under-cutting is ‘financing’. Many partners were screaming in social media that IT products were shown doors while applied for a bank loan. Saddest part is some nationalized banks too are not thrilled by the proposals to IT business. Most of the channel partners moan on the reason quoted by the banks- IT products are diminishing and added in not-so-performing sector. The channel also has been given irrelevant responses only for not to provide any financial assistance for the dealers.

However, the issue is different with the private financial sector. The private finance agencies are not rejecting the desired finance requests. However, the interest rates are sky-high which a channel partner cannot afford with the current market conditions. The other face of the challenge from the private sectors is no proper guidelines for providing the financial loans. A leading finance agency which approves loan in one city for an IT dealer is rejecting the same product 30 kilo meter away from the former.

There are still some associations manage to get finance companies sponsor for their regular events. This is a positive sign and shows there is still hope for the channel industry to grab sponsorships from the private finance companies. The IT associations across the country should start immediate focus on this issue with uttermost priority.

“We have had a great FY 16 (Apr to Mar) wherein our biz grew by 40%+ and we have a good outlook for FY 17 as well wherein we have planned to grow @ 35% on Y-o-Y basis.We have received tremendous support from our bankers and other financial institutions which has has supported us in achieving these growths. We have also seen many of our partners getting required support from their banks or financial institutions.”, says Byju Pillai, president, Inflow technologies, a distribution giant in the IT industry. He also said that, in inflow, they have enabled / facilitated many of our partners to get channel financing through third party financial institutions including from banks & NBFC’s. “We have ourselves set up limits to do bill byju_pillai_deoX1discounting, buyers credit etc to take care of the working capital needs of our business which helps channel partners indirectly. Need of the hour is to ensure that we spend time in the beginning of the order cycle, much before the time of commercially structuring an order to avoid any challenges at a later stage. It is important to be upfront and transparent with our suppliers & bankers so that we could have a collective discussion on commercial structuring of orders. The organisations that has followed these basic principles have had no challenges in getting financial support.”, Byju concluded.

With new initiatives like Digital India , Make in India , e-governance , Start -Up ecosystem push by the government and further penetration of broadband facilities in all parts of the country , demand of IT equipment will remain robust. Partners will however need to ensure adequate availability of working capital to benefit from these opportunities. Undercutting of margins is a serious profitability concern which the industry needs to address collectively. IT distribution is a highly competitive business. Due to intense competition , margins are getting thinner . Often resellers are forced to offer larger credit period to their customers. This is putting stress on their working capital management. We at X10 offer working capital solutions to address this concern and that too collateral free’.

“Partners are essentially traders who have invested relatively less capital in the business.Their balance sheets are often over asim-hussainleveraged leading to credit concerns. Low margins further raise concerns. Banks are hence often cautious and take small exposures only. Fund diversion is another risk that lenders see” says Asim Hussain, Head (Sales), X10 Finance, an organization actively involving in financing the channels.

He further adds that presently, the industry runs on back to back credits i.e the vendor gives 30-45 days credit and the partners offer similar credit to their customers. “Requirement of substantial own capital has not been there. There will be a consolidation at some stage where weaker partners will make way. Improvement of margins will encourage partners to infuse capital and manage finances better which will improve this situation.”, he further added. Explaining further Asim says We look at the cash flows of the partners rather than collateral. Our process looks at 1) Management quality and experience , 2) Financial analysis wrt repayment capacity based on cash flows , 3) Transactional history with vendors and 4) Future growth potential. We sanction anywhere between 20 lacs to 500 lacs collateral free. We also support partners for selected projects.”

L Ashok,CEO, Futurenet Technologies shares some of the best practices that help a channel organization have a cake-walk when it comes to maintaining the financial health of the organization.

1) Finance management discipline- Having a finance discipline both in payment and collection increases the credibility. Some financial companies reject for bounces in cheques.

2) Spend within your earnings- This is the other factor which many miss today. A channel partner should know what is the RoI on every single penny spent.

3) Invest early- Investing early will help them plan and execute their finance in the right path

4) Healthy cash balance- Having a healthy cash balance between income and expenditure even in terms of the human resource of the organization to be right.

5) Strong balance sheet- Needless to stay the first thing any funding agencies or venture capitalists company look for.

 

Leave a Reply

Your email address will not be published. Required fields are marked *