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Over the last few years the subject of finance and credit has never been too far away from the minds of those in the channel, as they look to improve their own fortunes, and hope that their customers will also start investing in IT.
Although the economy has started to recover from one of the worst recessions in living memory there have been some consequences of a few 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 looked to live within their means and stop using credit.
That might have worked when the economy was stagnating but now as things start to improve there are problems caused by a lack of credit. 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 the financial options that are out there.
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 the reports and SMEs and still struggling to get access to liquidity,” he says.
White adds that even with many ‘happy non-borrowers’ there continues to be a need to provide a source of credit because the mainstream and challenger banks are not providing the sort of support that specialists with channel knowledge can.
Once a reseller understands what credit options are on offer then they can be used to unlock some purchases that customers would like to make if they had access to more capital.
“Financing can be of huge benefit as it allows their available - and often small - budgets to go much further. But, very few SMBs 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. However, finding large amounts of cash for up-front costs is a massive concern, and often not possible, for a lot of SMBs – but with financing there’s no capital outlay so cash-flow problems are reduced,” says David Ellis, head of Technology and Services EMEA at Arrow ECS.
“Many believe financing is unnecessary if the cash is available, but with IT budgets mostly 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 SMBs actually raise the option of finance themselves. Clearly, more needs to be done to help SMBs 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 the channel themselves are encouraged to use the funds that distributors make available to fuel user growth.
Darren Maynard FCICM, head of credit, Avnet Technology Solutions, UK says that the distributor has seen the take up of leasing finance increase by around 50% in the last 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 end-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 though he also concedes that more education is needed if more channel players are going 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, SIs, ISVs and other service providers transform their business models to remain relevant and take advantage of new opportunities, many are building next-generation data centres,” 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 be able to pass them on to customers to help close the deal,” he adds.
The view from the coal face is that the education efforts need to be spent not so much on just 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 & 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 roles 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,” he adds.
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.
"Perhaps the question of providing finance is more of an issue for those in the channel who have not grasped that cloud-based communications solutions are what customers are now demanding. They could well be finding it difficult to transition their own business models to accommodate the recurring revenue which cloud based solutions deliver,” he says.
Jon Davies, director at 3 Step IT (UK), is also 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 also 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.