It is imperative vendors and distributors extend sufficient credit and finance to channel partners to take care of supply chain and forex woes writes Ghassan Abou Rjeily, Regional Channel Sales Manager, Emerging EMEA at Riverbed.
Channel financing schemes are a set of technology-enabled business and financial processes that provides flexible payment options for the partner community. In a typical channel financing arrangement, a vendor or distributor provides lower financing costs to resellers, solution providers and systems integrators based on their credit rating. Channel finance provides resellers, solution providers and systems integrators with flexibility, such as options for early payment discounts or to lengthen payment cycles.
Channel financing is what allows partners and distributors to bridge the gap in the payment terms between them and their customers. In the region, it is especially important for the large public sector opportunities which typically have longer payment processing cycles.
Credit facilities also allow partners to compensate for shipment delays that may occur, which in turn delays their invoicing to the customers and potentially affects their cashflow.
Currently, the biggest channel finance related challenge in the region relates to forex fluctuations in some countries. Because of dramatic swings, the committed prices in local currencies often significantly change their values against the US dollar. These fluctuations in countries like Turkey, Egypt, Lebanon among others are causing partners to incur losses at the time of payments.
Another challenge is the delivery delays that result due to the extended time needed to clear the goods from shipping ports. These delays impact the ability of the partner to invoice the customer on time and hence, perform their committed payments to the vendors.
Another major challenge is manpower related. Due to the growing IT skills gap, partners do not always have the resources they need to deliver professional services and carry out implementation on multiple projects simultaneously. This results in project delays which in turn delays the ability to invoice clients and impacts payment cycles with vendors.
Distributors and vendors should be flexible in reshuffling deliveries pending at warehouses due to customer unavailability.
Solutions
The solution to the financial challenges that partners face could be achieved through a combination of the following approaches:
- Sign contracts with remote affiliates of the resellers that are based in countries that have higher financial stability.
- Agree with customers on fixing the amount of the booked orders in US$ or their equivalent in local currency at the time of payment.
- Establish an open Letter of Credit with a value in US$ to execute at the time of the agreed payment
The channel would not be able to properly operate without proper credit facilities. Liquidity has often been a challenge in local markets as processing release of payments typically requires extended approvals and justifications.
The biggest channel finance related challenge in the region relates to forex fluctuations in some countries.
Customisation
Vendors and distributors need to be mindful of the unique challenges faced in some countries, and then tailor-make different credit facilities that are attuned to the country in which the partner operates.
These measures could include the following:
- Provide additional margins to the distributors to compensate for the delayed payments from their partners or to cover a part of the forex changes at the time of payments. Vendors could provide extended months of support to cover delivery gaps.
- Distributors could look to engage with high-transacting partners with big turnovers to couple different technologies together allowing the cash flow to be easily streamlined. Once this is achieved, payments would be managed to different vendors.
- Distributors should consider their alliances with partners that are rich in cash and consider positioning them as an intermediary between themselves and the partner that has been awarded the project. In such a scenario we will have Vendor–> Distributor–> Partner A–> Partner B–> Customer where Partner A would play the role of a bank.
When possible, distributors and vendors should be flexible in reshuffling deliveries that are pending at warehouses due to customer unavailability and instead redirect these solutions to customers that are keen to implement. This way both customers would be happy, and the implementation and payments would be done in a timely manner.
Distributors should perform proper credit checks on their partners to ensure that the provided credit facilities are aligned with the partner’s capabilities. Furthermore, distributors should have insurance in place on the amounts provided as credit to avoid back-to-back payment issues in the future.
Another challenge is the delivery delays that result due to the extended time needed to clear the goods from shipping ports.
Future scenarios
Resellers should maintain a good amount of cash in their accounts and should make their committed payments on time, to allow the insurance companies to provide them with the acceptance on extended credit facilities. A reseller that fails to make their payments on time for any reason that is not acceptable to the distributor or vendor would lose their credibility and face harder payment terms in the future.
Resellers should also consider having branches in multiple countries to allow them to secure their cash and perform transactions freely by avoiding local currency fluctuation challenges. And finally, resellers should work on their partnership levels with the vendors to secure higher discounts and increase their profit margins to compensate for delays and uncertainties.
Due to the growing IT skills gap, partners do not always have the resources they need to deliver professional services and carry out implementation on multiple projects simultaneously.