REDUCTION OF CREDIT PERIOD

14-day credit period will wipe out small dealers...

There are many small dealers who deal directly with distributors and depend
on the long credit period offered to do business. Now they will be forced to
deal with sub-distys, because these still give a longer credit period.

"Though financially strong partners will survive the reduction of credit period to 14 days, small dealers will find it tough to sustain" Manoj Wanvari Director, Growmore Computer Services

Smaller dealers are not financially strong to sustain business on a shorter
credit period. Neither do they have any security which can be pledged as
guarantee against a longer credit term. If sub-distrys ultimately decide to
reduce the credit cycle, these small players will get wiped out.

Same policy should be enforced on all dealers...

A 14-day credit cycle may be good for the industry, but it has to be done
uniformly. In many cases, the 14 days is extended up to 30 or even 60 days
depending on the relationship with the dealers.

There was no hard and fast rule, till recently, about the period dealers
would get credit for. But, following the ‘handling charges’ issue, distys
have started enforcing 14-day credit cycles for most dealers. At the same time,
some dealers continue to get the 21-day credit, which creates unfair
competition.

Government deals require longer credit period...

Many dealers get extended credit period for big deals from corporate or
government segments. Since these customers often delay their payments, an
extended credit period becomes necessary.

But some dealers have misused this benefit in the past, because of which
distys are reluctant to extend the credit period even for big deals. Big SIs
usually get longer credit periods against a letter of credit (LC) or bank
guarantees. So they would prefer to do business with the distrys, rather than
dealers like us.

No major impact visible so far...

Though distys say that shorter credit periods will benefit business in
general, we have not seen any improvement after the change. Neither have we seen
any dealers moving out of this trade.

This is because the 14-day credit period is not being strictly enforced on
every dealer. Depending on their relationship with a dealer and vendor
influence, distys often give flexible credit periods.

Customers go to those who give longer credit...

In this industry, customers tend to go to only those who give a longer credit
period. And to win deals, dealers have to make the best use of available funds.
Ideally, if customers make faster payment there is no need for any credit
period.

14-day credit period will reduce risk...

A fixed credit period was an open-door policy till payment defaults started
surfacing in the market. Credit periods given by 

distributors used to extend up
to 30 and even 60 days. But after several default and bankruptcy cases, the
credit period was immediately brought down to 14 days. To reduce the risk
further, it became important for distributors to verify the financial stability
of the dealer and his bank statements.

"A 14-day credit period would mean reduced financial risk and hence would bring certain discipline while conducting business transactions" Manoj Wanvari Director, Growmore Computer Services

Strict enforcement not possible in all cases...

Most distys try and maintain 14-day credit for most of the dealers dealing
with them. In the case of Zeta Technologies, we have been strictly giving 14-day
credit to all our buyers.

However, in some cases, we have given longer credit out of compulsion or
because of our partner-relationships. This will not in anyway affect the market
because it is given as a facility.

Higher credit period against guarantees...

A 14-day credit against blank cheques would mean limited risk. The moment it
is increased to 21 days, this facility becomes a liability. No one knows when a
dealer would go bankrupt. The only way a distributor can reduce his risk or
liability is by giving credit against a bank guarantee or letter of credit.

But we do give concession in big corporate or government deals, where there
is a genuine need for extended credit period. Vendors also influence some deals
and we have give extended credit in this scenario, as well.

Business can benefit with shorter credit cycles...

A 14-day credit cycle will given dealers larger exposure to more parties.
Only those dealers having capacity to rotate funds faster will deal with distrys.
Small dealers wanting a 21-day credit period will deal with sub-distys or
wholesalers who will continue to give 21-day credit. Besides, systems
integrators have bigger margins than dealers and get their payments faster as
well. So why do they need longer credit periods?

Credit should be given only on services...

It is advisable to rotate money faster, for quicker returns on investment.
The ideal thing is to have a zero-day or at least a minimum 14-day credit for
all channel tiers. But this is just a dream.

The industry has spoiled the customers, who expect everything on credit. Do
you get credit on consumer electronics or consumer durables? I feel credit
should be given only on service-oriented industry, including AMC.