The Credit in IT

DQ Channels - - Channel Pulse - RAJNEESH DE/ ra­jneeshd@cy­berme­

Afairly well-known SMB was re­cently look­ing to take on lease 50 odd lap­tops. The IT man­ager, was lament­ing that while the leas­ing com­pany had ini­tially agreed to the deal, at the eleventh hour it sud­denly cried off cit­ing that the com­pany's credit rat­ing was '8' and the leas­ing com­pany is un­able to do busi­ness with any­one hav­ing a credit rat­ing above 6. They will be will­ing to go ahead with the trans­ac­tion in case the bank stands as the guar­an­tor and is will­ing to un­der­write costs. This is the typ­i­cal sce­nario fac­ing sev­eral SMBs as well as part­ners who of­ten lease out or sup­ply hard­ware to these com­pa­nies. Work­ing cap­i­tal and credit flows are the big­gest prob­lems staring at their faces and there seems to be lit­tle room for ma­neu­ver­ing. It's a Catch 22 situation as oth­er­wise busi­nesses on both sides would come to a stand­still. So what could be the so­lu­tion?

One could be Non-Bank­ing Fi­nan­cial Cor­po­ra­tions (NBFCs) com­ing into the fray and help­ing part­ners, sup­pli­ers and SMB users by pro­vid­ing them easy fi­nanc­ing schemes. Redington owns one such NBFC which how­ever func­tions as a neu­tral chan­nel fi­nanc­ing com­pany; banks like ICICI of­fer softer loans or easy finance schemes un­der var­i­ous SMB pro­grams. Both the user or­ga­ni­za­tions as well as sup­pli­ers/part­ners (who too will come un­der SMBs) can avail of these fa­cil­i­ties. The banks could also look at re­struc­tur­ing their loan EMIs or at least ra­tio­nal­iz­ing them con­sid­er­ing that many of the SMBs are still to find their feet as they are com­ing out of the re­ces­sion mode. How­ever, it is im­per­a­tive upon the part­ners or the SMB or­ga­ni­za­tions to make a clean breast to the banks or what­ever fi­nan­cial in­sti­tu­tions they are deal­ing with. Any re­quest for loan re­struc­ture re­vi­sion should take into ac­count your true cur­rent fis­cal situation as well as a fairly ac­cu­rate as­sess­ment of your fu­ture cash-flow po­si­tion. Evad­ing the un­pleas­ant truth for long ei­ther by fib­bing or by push­ing them un­der the car­pet would lead you nowhere—be it your topline or bot­tom­line, your credit rat­ing out­side or your general mar­ket rep­u­ta­tion. There are talks of RBI stim­u­lat­ing the SMB sec­tor, but even if that hap­pens, our part­ners and SMBs in general have to main­tain a cer­tain stan­dard of fis­cal hy­giene to take full ad­van­tage of.

Of­ten ven­dors could of­fer ex­tend fi­nanc­ing terms to SMB re­sellers. These pro­grams of­fer el­i­gi­ble re­sellers pe­riod-based in­ter­est free credit by ex­tend­ing in­di­rect fi­nanc­ing through their dis­trib­u­tors. Of­ten a joint ap­proach be­tween a ven­dor and a fi­nanc­ing com­pany, this could be a god­send not only for main­tain­ing the work­ing cap­i­tals but even to suc­cess­fully en­able hard­ware ac­qui­si­tion like what the NCR com­pany wanted to do. The sub­si­dies thus of­fered to both the re­seller as well as the user not only al­lays their im­me­di­ate woes but also stim­u­lates busi­ness growth for both as well as driv­ing in­cre­men­tal sales rev­enue for the ven­dors. What we re­ally need in these cases is a happy mar­riage be­tween the part­ner credit pro­grams (that sub­si­dize and elon­gate the pay­ment cy­cle to the dis­trib­u­tor) and end user leas­ing pro­grams (that ac­cel­er­ate cash flow from end user to re­seller). That way not only the work­ing cap­i­tal prob­lem is suc­cess­fully tack­led, even my friend the IT man­ager will get lesser sleep­less nights.

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