From Westcon to Synnex to Avnet, distributors are raising the stakes in channel credit

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This article appeared in the February 2017 issue of CRN magazine.

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From Westcon to Synnex to Avnet, distributors are raising the stakes in channel credit
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Ilkka Tales is on a mission to bring a new breed of finance to Australia’s IT channel.

For the past three years, the former chief executive of Anittel, once Australia’s fastest-growing reseller group, has provided working capital alternatives to regional businesses through a global Australian financial services startup, Greensill Capital. Australian Lex Greensill founded the working capital disruptor five years ago; it now has 150 supply chain finance specialists globally.

Tales says supply chain finance is the best of both worlds: suppliers are paid sooner while resellers (or their customers) have longer terms. Everyone wins when they collaborate on a common payments technology platform, he claims.

“We have Aussie resellers signed up as suppliers for clients,” Tales says. “Those resellers get their money earlier and because they agree to longer payment terms [with their customers] their relationship is stickier.” He says Australian businesses turning over more than $50 million a year are on its books.

Tales reckons Australia’s channel is four years behind Europe and US adoption, which leans to heavy industries such as manufacturing, oil and gas, and telecommunications.  

Vodafone globally adopted the supply chain finance platform from Greensill’s partner, Taulia, for its $US10 billion supplier finance program. “So 85 percent of [Vodafone] suppliers are getting cash daily rather than waiting for normal payment terms on their invoices,” Tales says. 

Greensill claims $US12 billion capital to 900,000 suppliers in 50 countries. It issues supplier-finance notes (like bank bonds) based on purchase orders in its system to raise funds on capital markets, and in 2014 acquired German NordFinanz Finance Bank AG. “Other banks globally buy those [purchase order] notes because they take a clear line of credit into companies such as Vodafone,” he says. 

But underpinning Vodafone’s solution is Taulia’s peer-to-peer payments platform. It combines electronic invoicing, supplier management portal and ERP. “The development of  supply chain finance programs are helping drive economic growth by unlocking vital liquidity trapped in supply chains,” says Tales.

So impressed by its ability to release much-needed cash flow – a leading cause of failure for early-stage businesses and SMEs (see box) – US President Barack Obama recommended it in 2014 for the SupplierPay early-payments program that encourages big corporates to pay their smaller suppliers faster.  Tales says all actors in the channel owe it to themselves to consider a supply chain finance solution. “If your customers are coming to you and asking for longer payment terms, ask if they have a supply chain finance program in place”. 

The channel’s bank

Distributors have long been the banks of the channel, supplying product to resellers on credit.

A common piece of feedback from CRN Fast50 companies has been the importance of distributor credit in their early days – in this way, disties have helped many of Australia’s resellers grow successfully.  Channel partners often shop around distributors based purely on credit flexibility, so it should come as no surprise that some disties have begun offering a range of innovative finance programs. 

Westcon-Comstor, for instance, established its own captive finance company to seed its resellers as they offer cloud and on-demand services. “The discussion is no longer, ‘Do I pay cash or [ask for] leasing?” says Westcon Financial Services sales director Mark Hegarty. The business arrived in Australian in late 2016, underpinned by Westcon’s South African parent company, Datatec.

Resellers creating their own intellectual property (IP), by knitting Westcon-supplied products and services into their own platform, can access distie purchase order finance, speeding time to revenue. 

“The reseller may wait three years for his money back on the box, plus he hasn’t been paid for his IP. Our solution allows him to bring the cashflow and revenue forward so we unlock the value in the purchase order.”

Hegarty says the interest rate is comparable to a lease. But because Westcon is deeper into the transaction and a beneficiary, it may extend finance when a bank would baulk. “If you’re looking at growing your business in 2017, even if you don’t have an order now, have a chat to us and we can start the process and education of understanding what’s available,” Hegarty says. “Then when they go into a contracting piece with a client they’re in a better place to understand how to structure.”

Hegarty says he was surprised recently when an emerging reseller won a $3 million contract with a bank for security and battery power on the back of Westcon’s purchase order finance. “They’re nimble and smart, which encouraged the bank to give them the business, but the challenge was they had to come up with cash they otherwise wouldn’t be able to access.”

Next page: Self-insurance flexibility

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