Making Credit Work For You

Business has been growing all across the country, and this has brought
partners in a good mood. With this economical bonhomie all around, there is an
increase in investment in the channel business. Also, as more and more vendors
enter the country, new distributors emerge and new products are launched,
partners can demand and get better credit facilities from their suppliers.

This credit can be used for generating more profit, if used wisely. Higher
credit limits often belie a promise for turning it into good business. But there
are different facets to credit and at times, managing increased financial
availability becomes a challenge for partners. This is especially in the case of
smaller cities where the market is limited and business can't be grown
overnight, just by getting access to some moolah.

If a partner wants to improve his business, there are numerous options in the
market available for fund procurement. These include the traditional sources
like bank, shares, distributors, etc.

Needless to say, the last option is the most preferred one by the channel.
But very few players in the market know how to harness this support
appropriately to feed their business.

By: Paramjit Singh Juneja

Develop worthiness

Often when partners ask their distributors about credit, they are
disappointed if their expectations are not met. But the distributors are not
entirely at fault. Observing the potential in IT industry, the number of dealers
is growing everyday. And it is no small wonder that distributors are concerned
when it comes to gauging a partner's credibility. Given the recent spate of
payment defaulters and partners absconding with borrowed money, distributors
have to ensure that their investment in their dealers is safeguarded. Therefore,
as a partner, if you wish to get a good credit limit from your distributor, it
is necessary that you prove your credibility and gain your distributor's trust.

At the same time, when distributors have full confidence in your business,
they play tricks to exceed your credit limit. This sounds very lucrative to the
channel and they find it impossible to resist such an offer. But don't be
falsely optimistic. You might realize later that distributors have dumped extra
stock on you by increasing your credit limit, and now you have to sell the
products before they stagnate or their prices drop. Remember that credit can be
a two-way game and you have to make sure that your interests are safeguarded
prior to opting for higher credit limits.

Act smart before it's too late

The reason that some distributors extend their partner's credit limit is to
meet their sales target. This way, they pass on the responsibility of dissolving
stocks onto their partners. At the same time, partners can enjoy the extended
credit limit if they have managed their finances well, and have a good knowledge
of the market trends.

Most distributors have two types of products-the fast moving products like
consumables, and the slow moving ones like enterprise products. Due to higher
credit limit, dealers try to maximize on this facility by placing increased
orders. If they are into enterprise business, then there is a chance that they
will stock up on products like high-end switches or routers. But they have to
make sure that these products are pushed down quickly in the market, so that
they don't have to bear any loss. This can be a challenge, if the partner has
not taken into consideration various factors like his customers' needs, business
opportunities available, his team's capacity to sell, etc.

This is because technology is moving quickly and there is a constant
evolution in the market. Products become obsolete, prices are cut down, and at
many points, vendors discontinue certain models. In such cases, a higher
financial support becomes a kind of loss to the channel as they have to repay
the distributor on the due date, irrespective of whether the product is sold or
not.

Managing credit astutely

To manage your financial health, partners must liquidate their available
stock and sell it quickly to avoid monetary loss. If a partner deals in
entry-level or fast moving products then it becomes slightly easier to sell them
in the market. However, there are vendors like HP who introduce new product
models frequently. With the introduction of new models, the demand for the older
versions starts decreasing and it becomes difficult to move such products.

This is why it is imperative that the partner devises various schemes on a
regular basis to liquidate stocks. For instance, dealers can push some
slow-moving products by offering it as a gift to its sub-dealers or customers
with the purchase of a certain units of a particular product.

Partners can also come up with various other initiatives so that their money
is not blocked, but the credit offered to them is fully utilized. They could
tie-up with local customers like retail outlets and offer a good price on bulk
purchases or run end-customer schemes as well.

Many a times, when a product becomes outdated, dealers cannot do anything but
suffer the loss. In such a situation, vendors can offer some support to partners
by taking the product back or offering them some discount on new range of
products. But this rarely happens. So practically, the channel suffers due to
unplanned usage of credit offerings.

Management mantra

Before taking any credit support from a distributor, partners should
understand the market trends, study the vendor's product roadmap, and then
invest accordingly. If you are selling a particular printer and a new model is
likely to be launched within the next quarter, it would not be advisable to
place a huge order for that printer, even if the distributor is offering better
credit.

Such a well-planned invest­ment can strengthen your business potential and
also improve your credit worthiness because you will be able to use the finance
efficiently and repay the distributors on time. It will also ensure that you can
sustain high growth in the long term, and can make good use of available
resources to develop and nurture your core competency.

Credit is like a rope. You can use it as a ladder to climb up to the success
or it can turn into a noose to strangle your business and future. Use it wisely.

(The author is CEO of Secant Technologies, Ludhiana)