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Many sub-distributors have gone ahead and extended the credit period to ease the slowdown blues for resellers. But, the pressure is mounting on them from the national distis and sooner or later they will have to squeeze back the limit. Due to the credit crunch brought about by the slowdown, payment collection has become the biggest task at hand. And there is a big debate in the market as to what is better; increasing the credit limit to ease the pressure on resellers or keep it on a tight leash to ensure regularity.

Players across the industry are implementing different checks and measures in order to maintain a safe reserve of cash in times of slowdown. Sub-distis are also adopting methods to maintain a constant flow of funds at their end and to ensure timely payments, they are experimenting with the credit period so that the inflow of cash is regulated moderately.

The Scenario
There is no secret recipe to evade the effects of the economic downturn, but nevertheless, sub-distis are trying to take measures from their ends to at least minimize them. One of them is to modify the credit limit.

One set of distis believe in expanding the credit period so that it becomes easy for the resellers and partners to pay cash. However, another set of partners feel strongly that in this scenario, sub-distis should rather squeeze the credit limit. Sub-distis in metros like Delhi and upcountry have gone ahead to stretch their credit limit from twenty to forty days. Though the change in policy is affecting their business returns, still they are hoping that this would get them some releif.

Manish Mehrotra, a sub-distributor in Allahabad informed that the market has been very slow for the past few months. Considering the fear of credit crunch in the market, some sub-distis have extended their credit limit from twenty to forty days. Because of this the sub-distis are facing a delay in payments; but there is no relief to them from the national distis. In fact, the national distis would further reduce the credit limit.

Swarajya Gupta of New Delhi based Digitronics Infosolutions has also extended the credit period from twenty to forty days. Gupta informed that this is just a measure to ensure smooth flow of cash. Since everyone is facing a tight flow of funds, we had to stretch the credit period so that partners are in a position to pay us back, he said.

Sharing his thoughts, Vishak Raman from Fortinet said, Fortinet is considering working on ways to help its channel. We will negotiate with our distributors to ease the credit term for some of the partners when the customer delays payment. Based on channels performance and credit worthiness, we can work with the distributor to extend the credit limit and time for our twenty-eight partners, on selective case-to-case basis.

To Expand or Not to
National distis like Ingram Micro and Redington are still following a credit period of fifteen to twenty days with no plan to extend it to use it as a tool to fight the slowdown. Instead, they are planning to shorten the credit period so that the process of cash collection is quick and stringent.

The market has become stagnant as customers are postponing their buying decisions and resellers are facing difficulty in generating cash and this is further hampering their deals with the sub-distributors.

Resellers at certain stages are not able to do 70% of their business as there are no buyers. In that case they request the sub-distributors to expand the credit period so that they get some time to generate cash. To provide them some ease, some sub-distributors are going ahead and becoming lenient in cash collection, opined one of the partners.

Good, Bad or Ugly
However, the situation is different at the level of national distis. Sub-distis are predicting that in the coming days, national distis would become strict with the credit period and they will further squeeze it from fifteen to twenty days, depending on the product line. However, when they shorten the credit collection period for the sub-distributors, the latter is bound to feel the pinch and they would also have to shorten their credit periods. The squeezed credit period at the end of sub-distis would keep the corporate partners and retail partners on their toes to do value business.

At time of financial crisis, cash is the king and liquidity crunch sets an alarm for the resellers and the channel partners to scan their financial status and revise their business strategies. At this stage it would be advisable for sub-distis to shorten the credit period so that it gives space to serious players to prove their potential, said Rohit Kohli of Kanpur based Comexcell Technologies.

Get Disciplined
Sub-distributors opined that contraction in the credit period would refine serious players from the non-serious ones.

IT channel is one segment that runs on credit. In this business anybody can enter and start his own venture on the basis of credit. This liberty gives space to a number of non-serious players, accorded a partner.

Recently, incidents have occurred in markets like Lucknow, Kanpur and down south, especially Bengaluru where partners have absconded because of their inability to repay the debts. The strategy of the national-distis to shorten the credit period would separate the good from the bad and strong from the weak.

Amrita Tejasvi/DQ Channels
maildqindia@cybermedia.co.in

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