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Over the past few years the subject of finance and credit has never been far from the minds of those
in the channel business, as they look to improve their own fortunes in the hope that their customers will start investing in IT.
Although the economy has recovered from one of the worst recessions in living memory there have been consequences from the years of tough times and belt tightening.
One of the main ones is that whenever you read a survey of the state of finances in the SME market, it tends to show that many now describe themselves as “happy non-borrowers”. Faced with rejection from the banks and a lack of knowledge about the alternatives, many customers have looked to live within their means and stop using creditThat might have worked when the economy was stagnating but now, as things start to improve, the lack of credit is causing problems. Trying to find the funds organically to pay for investment and new recruits is a difficult proposition for some SMEs.It is at that point that the channel should roll up and talk to the customer about finance options.
Not everyone will be in a position to do that and Philip White, UK managing director of Syscap, accepts that there continues to be a need for education around finance and credit as the customer need remains high.
“Despite an improving economy and irrespective of what the banks say, you just need to look at thereports and SMEs still struggling to get access to liquidity,” he says.
White adds that even with many “happy non-borrowers” there remains a need for a source of credit because the mainstream and challenger banks are not providing the support that specialist financiers with channel knowledge can.
Shrinking IT budgets
Resellers need to understand the credit options on offer that can unlock some of the purchases customers would make if they had access to the capital.
“Financing can be of huge benefit as it allows their available – and often small – budgets to go much further. But, very few SMEs use ICT financing; many are unaware how it works, while fewer still understand the benefits of it, and instead prefer to spend cash on large purchases. But finding large amounts of cash for up-front costs is a massive concern, and often not possible, for a lot of SMEs – but with financing there’s no capital outlay, so cash-flow problems are reduced,” says David Ellis, head of technology and services Emea at
“Many believe financing is unnecessary if the cash is available, but with IT budgets expected to shrink in the next year, financing can help the cash go much further. On the flip side many ICT vendors hardly mention financing when discussing deals, if at all – more SMEs actually raise the option of finance themselves. Clearly, more needs to be done to help SMEs understand the benefits of ICT financing – vendors and resellers need to be more proactive in discussing finance options with their customers,” he adds.
As well as encouraging customers to take up external finance, channel operators themselves are encouraged to use the funds distributors make
available to fuel user growth.
Darren Maynard FCICM, head of credit at Avnet Technology Solutions UK, says the distributor has seen the take-up of leasing finance increase by around 50% in the past 12 months, and expects this trend to continue.
“This increase is partly due to more awareness of the different financing options available, plus the need for the channel to respond to customer demand by way of a shift from fixed (capital expense) to variable (operational expense) cost models. As users request monthly payments or payment spread over 12 or 36 months, business partners are being forced to provide alternative finance options,” he says.
Like White, Maynard also concedes that more education is needed if channel players are to get into a position to deliver sound financial advice to their customers. “There is still room for more awareness of the different financial options available. The most proactive business partners in this area benefit by enabling organisations to invest in new technologies, which in turn drives growth for them and their customers. A contributing factor to the increased take-up of leasing is a change taking place in the channel. As traditional resellers, systems integrators, independent software vendors
and other service providers transform their business models to remain relevant and exploit new opportunities, many are building next-generation
datacentres,” he says.
“Progress is being made but there is still more that could be done to educate and enable the channel in terms of what finance options are available and to compare the terms and sources of the deals on offer. Certainly at Avnet we now include finance proposals to support configurations and quotes prepared for business partners. With initiatives such as these, channel partners will become more aware of finance options available and pass them on to customers to help close the deal.”
Finance in a changing industry
The view from the coalface is that the education needs to focus not so much on guiding partners through the basics of finance, but giving them the latest advice on living in a cloud world.
“I am not convinced that the channel has ever struggled to offer finance to customers. I’ve been working in the IT and communications industry
for 20 years and finance for technology solutions has always been available,” says Nick Beardsley, sales director – new business and converged
solutions, Olive Communications.
“What’s different in today’s business communication solutions marketplace is that traditional finance packages are now not so relevant. Today’s customers are looking to deploy cloud-based technology solutions, Olive is seeing a huge shift away from on-premise solutions and is helping businesses of all sizes across all sectors migrate to the cloud. This is leading to a different commercial model, with customers paying for their technology solutions on a monthly, almost ‘subscription’, basis,” he adds.
“Customers today want to consume the technology their users need from the cloud and consumption is based on the individual role of each employee. One size no longer fits all. Customers want a flexible service contract that meets the technology needs of each of their users and which is able to scale up or down depending on their business requirements. They want to pay for the technology on a pay-as-you-go basis. The days are long gone when customers with on-premise ‘tin’ paid for technology they weren’t actually using.”
For Beardsley, the finance debate is happening against the backdrop of more fundamental changes in the industry – and it needs to form part of that wider conversation, he says.
Perhaps the question of providing finance is more of an issue for those in the channel who have not grasped that customers are now demanding cloud-based communications: “They could well be finding it difficult to transition their own business models to accommodate the recurring revenue which cloud-based solutions deliver,” says Beardsley.
Jon Davies, director at 3 Step IT (UK), is keen to get partners to think of finance as something more than just providing the funds to facilitate a
purchase order. “The channel has struggled to offer finance because often they see it as just another obstacle to closing the deal – especially if
the prospect has cash in the bank that is not yielding a return. I don’t think the recovery will change that, unless resellers start to take a more strategic view of finance,” he says.
“For example, offering finance can be the best way to take control of your client’s refresh cycle. And for larger opportunities, you can offer finance as part of a complete asset management solution that takes the acquisition, asset management and disposal headaches away from the business. Including finance as part of your asset management proposition makes perfect sense,” he adds.
With the current buzzword being “business transformation” the opportunities for resellers to talk to their customers about the direction things are heading in should be fairly ample. Not only should those discussions include talking about infrastructure, applications, storage and
security – but how things will be paid for. A smart pitch including finance is more likely to provide the strategic support that so many customers are looking for right now.