Anyone viewing Ireland from the outside over the past two years would be forgiven for wondering whether it might make sense for the country to change its name to ‘Bankland,’ given that so many significant political and economic decisions over that time have been as a direct result of the (mis)behaviour of the banks. Of course, there is always the prospect we could end up with a very similar sounding name if things go seriously awry: Bankrupt.
In the meantime, the consequences have been devastating for the country. As well as a huge leap in unemployment, an estimated 1,000 people emigrating every week, more taxes and cuts in public sector services, businesses are also struggling to get the credit which helps to oil the wheels of commerce. If the banks aren’t advancing finance, it can make things more difficult especially when you consider that when times get tough, so do the credit insurers. John Dunne, managing director at Sharptext, agrees that credit is “a big challenge for everyone,” the customer, reseller, distributor and vendor. It helps that the distributor has a strong knowledge of most resellers it deals with and that there aren’t many new entrants coming along to make things more risky. “The knowledge we have of people here [in Ireland] is very strong,” he claims.
Trading history
It helps that a trading history has been built up over time, but Sharptext would probably have to take a hard look at a reseller that works with a EUR*5,000 or EUR*10,000 credit limit suddenly looking to source credit for a deal worth EUR*100,000. “It’s much harder for smaller resellers if they end up getting substantial deals,” Dunne argues. “The ease with which they are able to avail of instantly higher credit limits is a bit of a challenge.” On one level, it has become easier to work to limits in the current economic climate because there are unlikely to be many instances of resellers surging from a EUR*200,000 turnover one year to EUR*5m the next. He believes the best way to get the bigger deals through is to make sure Sharptext has a “very close relationship to the reseller and has a good understanding of the proposition, the solution and the user.” It’s very important, particularly with substantial projects, that a distributor like Sharptext is comfortable with whom the customer is: “The sustainability of the user is critical.” The reseller should also ensure that payment and payment terms are at the forefront of the proposal. Dunne says it’s noticeable that sales teams are starting to put credit at the front of their minds. Once they start talking to the customer, they also work with the finance people to try and address any issues that might come up before the deal is agreed.
Clear communication
Garnett Stewart, general manager at SquareOne, is also keen to talk about the need for distributors to “get close to what the business resellers are doing and the users they’re dealing with” to get better visibility of what’s coming down the line. It’s important that “communication is clear between the reseller and ourselves.” SquareOne tries to be flexible because the distributor recognises that resellers are “at the mercy of the user paying on time.” If it has a good understanding of the reseller’s customer, SquareOne can also understand where the clogs and blocks may come. “You’ve got to look at each individual case and unfortunately that brings a certain amount of admin because it isn’t one size fits all.” Like Dunne at Sharptext, Stewart would probably start asking questions of a reseller that doesn’t do a lot of business with SquareOne suddenly landing a big deal. “Why are they suddenly doing business with us? Have they maxed out their credit with the other distributors?” The importance of the relationship with the reseller to credit arrangements is that it can help the distributor to feel comfortable about introducing more flexibility into the arrangement.
For instance, if a longstanding reseller needs a certain amount of credit for the next 60 days and SquareOne has a good relationship with the company with historically few problems, it will be more at ease with the credit terms. Or if a reseller needs to have 50 units of a certain product over the next quarter, the distributor will feel happier holding them in stock. A closer relationship also means better communication. “When there are issues, everyone needs to be made aware of it,” Stewart argues. “There’s nothing as bad as just letting things be and having something nasty coming out of the blue,” as everyone in Ireland knows only too well. Bigger resellers probably have a better opportunity in terms of accessing credit at the moment because of their trading history and credit relationship. Stewart thinks that with banks and financial institutions being so tight at the moment, small businesses could lose out on big opportunities, especially in instances where a finance facility for 90 days could be the difference between landing a deal and losing it.
From a reseller perspective, Triangle managing director Kieran McCabe, agrees that it’s important to make sure the company’s finances are in good shape when it comes to getting credit through distributors. At the customer level, there are a number of options available and McCabe doesn’t believe that any deals have been held up through non-availability of cash in the market, especially not for larger customers. For those types of organisations, if it doesn’t suit them to spend cash or find it from other sources, manufacturers are often willing to lease equipment instead. McCabe funds his business through the tried and tested route of invoice discounting and has had no problem with the bank. While it takes 20%, the bank also gets a good view of the business because it sees and approves the invoices. On the occasions where a deal is bigger than the agreement with the bank, he has to rely on the trust of the distributor that the customer is a good bet. Crosshead: Leasing is the way
Another way of overcoming the credit issue is leasing. Eoin Christian is country manager at leasing business Grenke, which started six years ago in Germany. He says the company can provide leasing agreements across “all the different vendors, the usual suspects” and they can cover IT, copiers and telecoms. While there’s nothing new about leasing, it may well prove more attractive to resellers and customers at present. From a leasee’s perspective, it protects their cash flow because they pay an agreed amount every month rather than splurging out massive sums every three years to renew equipment. During the course of the contract, they also have the opportunity to upgrade their equipment (possibly without having to increase their monthly payments). From a reseller’s point of view, there are a number of attractions. Prompt payment probably ranks very highly. They are typically paid a couple of days after delivery. Christian describes this as leasing’s “biggest selling point.” Because leasing is all that Grenke does, he claims it as “very secure and very safe. Leasing allows you to get paid straightaway and not worry about 30, 60 or 90 day payment terms. The headaches are gone.”
Another potential benefit is that it helps to “tie-in” the customer that has signed up to a three year deal, so it is less likely to jump ship. Grenke will cover any deal from €500 up. Christian says it has lots of deals where the product being leased is a laptop or two. The company’s “core business” is small ticket deals. He claims it has “never been busier. We’re very happy with the market at the moment.” While it is not possible to offer leasing on services, Grenke does have a facility to collect for services during a lease. It is also one of the few prepared to back 100% software leasing deals “because we see the value in it. Hardware is driven by the software.” Dunne at Sharptext says traditional resellers don’t seem to offer leasing packages as part of their sale in comparison to areas such as office machines where “it’s the first thing they talk about.”
He describes Grenke as “among the few companies interested in doing IT and office equipment leasing.” The reluctance of resellers to take on leasing is at odds with the fact that “once you understand it, it’s the easiest thing in the world [to sell].” The companies have a rate card that gives the cost per thousand over the term of the contract. Dunne at Sharptext, says resellers “should want to do it” especially as they can also get pre-approval for deals. Sharptext promotes IBM and Cisco’s leasing options which can often offer 0% finance. “Vendors have a very, very strong proposition in the market,” he argues. “It’s just a question of finding the right fit.”
For James Finglas, managing director at MJ Flood Technology, one of the best ways to overcome the credit and cash flow issues to move “the whole conversation from CapEx to OpEx.” If you can take the infrastructure spend and turn it into OpEx costs, the attraction is very strong for customers. It’s also beneficial for resellers because it turns a transactional relationship into a multi-year contract with the prospect of much stronger customer loyalty. Finglas argues that MJ Flood’s financial strength gives it the ability to help shift deals from CapEx to OpEx. While he “wouldn’t openly advertise the company as a replacement for a bank, if it comes up in conversation, we can move. Credit should not be a blocker to a deal. You can find ways around that by thinking outside the box.”
But MJ Flood would not be assuming risk in the same way as a financial institution might do: “At the forefront of my mind is not damaging our own fiscal position.” He says arriving at a solution design that’s a mix of CapEx and OpEx can be blended together and charged on a monthly cost. And cloud-based solutions lend themselves very well to the OpEx model. Finglas warns that “resellers going out to market with the same old traditional model are less likely to be growing their business.”
Deep pockets
McCabe at Triangle makes the entirely reasonable point that anyone trying to offer products on an OpEx basis “has to have deep pockets themselves to provide that.” As head of SME and partner business at Microsoft, Martin Cullen is ideally placed to provide the perspective of someone with deep pockets. Microsoft has its own finance operation but Cullen says that cloud computing provides resellers with “a different way of approaching the conversation.” Because Microsoft has made the capital investment already, there’s no additional burden sharing risk. “You effectively get what you would have with financing,” he states, but it also gives resellers the options to provide cloud-based Microsoft software on an OpEx basis where customers can pay on a utility basis.
Cullen says it can help companies that might not be able to get access to cash and he points to start ups that can gain a “huge amount of comfort” from the model because there is no big investment upfront in technology. He believes the cloud-proposition “can have a huge impact.” But there are an awful lot of people who either don’t know how cloud computing works or understand how it matters to them, so there’s a job to be done there, particularly in promoting it as a different way of managing their cost model. Most of the partner community is adapting to the cloud proposition, Cullen claims, and some are doing it faster than others. They can do it themselves or adopt Microsoft’s own service and sell it on with a managed service wraparound to customers.
He argues that as the majority of customers use very similar applications, they can avail of many of them in the cloud today “and not invest in IT infrastructure.” If the financial arguments deployed in favour of cloud-based computing can open up another front in the quest for credit, a lot of companies could end up with their heads (and cash) in the cloud.
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