Analysis: Freeing up the channel's cash flow

Financing options return as economy recovers.

Australian integrators are turning to leasing, financing and credit options as the economy starts to recover and companies consider reinvesting in IT.

Jens Butler, principal analyst at IT research firm - Ovum told CRN that more players in the industry are offering financing options.

"Look at Westcon's recent move into the financing area," he said. "Given that organisations are starting to consider investing [in IT] again, an [increased] cash flow still resonates as a powerful argument."

Butler said that traditionally, Australian integrators have been reluctant to take up financing. He said the  terms offered  in Australia have not been as competitive as in North America.

"Some say this level of conservatism has been good, given the recent occurrences [such as the] global financial crisis," he said.

"There has been a 'whole of life' perspective of IT investment and often the leasing option hasn't been the cheapest over the full cycle of the associated products. This has often swayed the decision to 'self-fund'."

But Butler claimed this view has started to change - with credit being more readily available in the current market and more stringent terms in place.

He said there is likely to be an increased acceptance of such options, "especially as more players - beyond just IBM and Cisco - come into the market".

Australian distributors Express Data and Distribution Central offer financing options to their resellers.

Mal Shaw, general manager sales Australia at Express Data said the distie created specific processes for transactions that involve a financier.

"This arrangement has advantages in that the project can be treated separately to a reseller's credit limit," he said. "This is very useful when a large transaction exceeds standard trading patterns."

Nick Verykios, marketing director at Distribution Central said financing becomes an option when a company recognises either a definite operational efficiency or revenue generating opportunity in investing in a particular IT initiative but hasn't budgeted for it.

"Leasing and other similar finance options allow for this [extra expense]," he said.

Lee Curtis, an independent IT consultant, said established integrators have lines of credit with their distributors and that provides a substantial working cash flow.

"The smarter firms are using finance to consolidate hardware, software, service and support into an OpEx [operating expenditure] budget rather than CapEx [capital expenditure]," he said.

"It works for the client who retains capital for cash flow and growth and it works for suppliers/integrators because they get cash up front."

In his experience, channel partners that have embraced finance have "seen their revenue grow", Curtis said.

"It reduces the risk for the client and removes a barrier to sales," said Curtis "It allows the reseller to sell more equipment because the relative increase in monthly payments is more agreeable".

However Chris Herrmann, managing director at Sydney-based SME integrator - Far Edge Technology - claimed the financial crisis had "drastically reduced the amount of financing" that its customers have taken up.

"Almost all projects in the past 18 months have been paid in cash and not with finance. Previously the percentage of financing was higher," he said.

"The people who can't afford credit are waiting, and customers generally try to access credit through their business banker first before using vendor finance or specialist IT finance."

He claimed only a very small percentage of projects it worked on this year were financed - everyone else paid in cash.

"It was our cashed up customers who were taking the opportunity to roll out new infrastructure," said Herrmann.

However he wouldn't dismiss the idea of using financing in the future.

Herrmann told CRN Far Edge's experience with using vendor financing had mostly been good, except occasions when the vendor wasn't keen to finance equipment from other vendors.

"This can be an issue when a typical implementation might involve products from three to four vendors, as well as services," he said. "There is reluctance on the part of vendors to finance the entire deal - whilst the banks will do so."

Curtis said the pitfalls of being locked in with one vendor can be avoided.

"[There's] at least two routes for financing," he said.

"I'd leverage a blend of vendor and third party credit. In the end, it's probably a question for financial directors and accountants to balance cash flow, assets and liabilities as well as the business to balance single-supplier risk."

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