Manda Banda is Lynchpin Media ’ s Deputy Managing Editor and Editor of Intelligent CIO Middle East and Intelligent CIO Africa . |
Can the partner community survive without the credit schemes that IT vendors and Value Added Distributors offer ? The majority of IT distributors in the volume and value sector in the Middle East and Africa ( MEA ) IT industry extend credit terms to channel partners or have developed channel financing schemes as a way of mitigating cash flow challenges that resellers or solution providers encounter when financing big projects . However , developments that have happened over the past few years in the region have prompted distributors to reconsider how they extend credit facilities to their channel partners . According to global credit insurance firms , the risk of non-payment by companies has not disappeared and caution is in order as the world continues to suffer from subdued growth and trade prospects due to the COVID-19 pandemic .
Let us take a look at the Gulf region , for example , the banks ’ appetite for SMB lending has drastically reduced and credit insurers have reduced the credit limit due to certain resellers having either run away or exited the local channel and this has affected other players .
Most of the resellers , especially in the GCC , do not maintain a formal set of financial records that are regularly audited , and the lack of audited financials prevents IT vendors and distributors from providing direct credit to channel partners . Reseller ‘ runaways ’ – a trend where an IT reseller or trading company exits the market because it is failing to meet its debt obligations – is
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far too common in most Gulf markets , and
this has temporarily affected the credit
and business sentiment as lenders and , in
particular , IT distributors have lost money
through such malpractice . That said , it
is important to point out that this may
get adjusted over time and might also
act as a catalyst to bring in certain best
practices , such as transparency in prudent
bookkeeping of resellers and getting them to
regularly audit their books .
If one looks at the credit relationship
between a vendor and a distributor , one
quickly realises that it is a straightforward
association built on business fundamentals .
The vendor usually requires a letter of credit
and a bank assurance which guarantees
a smooth relationship where the vendor
doesn ’ t have to wait for the distributor to
transfer money each time but based on the
bank guarantee the vendor can acknowledge
and ship the goods .
In the case of distributor and reseller
relationships , the volumes of business are
much smaller . Some distributors would do
full financial checks on the reseller if the
relationship is a new one . They would take
Given the low margins that channel partners work with , I do believe that it ’ s impossible for the regional channel to survive and operate without proper credit schemes in place .
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this due diligence even further and ask for audited financial statements for the previous years if the reseller has been in business for some time .
For an existing relationship , if the distributor has experienced no records of bounced cheques or defaulting payments and that payments are always made by the reseller within the credit period , then the distributor extends better credit terms to that partner . If anything fractures that relationship or mistrust develops , then distributors get cautious and moving forward , they start requesting for postdated cheques and cash on delivery .
And while most channel stakeholders agree that credit schemes play a critical role in enabling partners to finance big IT projects , others have long argued that the regional channel can survive and operate effectively without the generous channel credit financing schemes that are normally offered to them .
Given the low margins that channel partners work with , I do believe that it ’ s impossible for the regional channel to survive and operate without proper credit schemes in place .
That being the case , it ’ s important to point out that the trust factor has vanished from the MEA channel and this has been worsened by recent cases where resellers with huge bad debts due have run away from the local channel for fear of being prosecuted . Huge inventory issues and slow sell-out have impacted cash flow of most resellers and IT distributors thereby defaulting on their account payables .
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