Fi­nanc­ing–The Next Big Pain for Chan­nels

The un­eth­i­cal e-sale has come to a dra­matic halt with all the e-sell­ing por­tals has re­fused money-back for elec­tronic goods

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The un­eth­i­cal e-sale has come to a dra­matic halt with all the e-sell­ing por­tals has re­fused mon­ey­back for elec­tronic goods. Also, on the so­lu­tions space, the cloud is still a dis­tant dream as the num­bers has not af­fected the stor­age or ser­vice busi­ness in many of the chan­nel or­ga­ni­za­tions.

What’s more, the lat­est chal­lenge for the chan­nel fra­ter­nity comes in the new and un­pre­dicted form - Fi­nanc­ing. At present, there are two ways in which any chan­nel part­ner gets fi­nanced- Fi­nance by fi­nan­cial in­sti­tu­tions and fi­nance by non-fi­nan­cial firms. Banks both pri­vate and govern­ment-owned will be an ex­am­ple for the for­mer while the fund­ing by dis­trib­u­tors, ven­dors or other chan­nel part­ners them­selves in the process of the billing is a clas­sic ex­am­ple for the lat­ter. The fund­ing from the non-fi­nan­cial agen­cies in the IT sec­tor has started re­duc­ing the money-flow as they, be­ing the part of the in­dus­try, knew the hard­ships faced by the others. How­ever, the fi­nan­cial in­sti­tu­tions which were in good terms with the chan­nel fra­ter­nity has started cross­ing horns.

The lat­est ad­di­tion in any chan­nel part­ner’s list of headaches be­sides filthy com­pe­ti­tion, hap­pens to be the un­eth­i­cal e-sale, un­der-cut­ting is ‘fi­nanc­ing’. Many part­ners were scream­ing on so­cial me­dia that the IT prod­ucts were shown doors while ap­plied for a bank loan. Sad­dest part is some na­tion­al­ized banks too are not thrilled by the pro­pos­als to IT busi­ness. Most of the chan­nel part­ners moan on the rea­son quoted by the banks- IT prod­ucts are di­min­ish­ing and added in not-so-per­form­ing sec­tor. The chan­nel also has been given ir­rel­e­vant re­sponses for not be­ing able to pro­vide any fi­nan­cial as­sis­tance for the deal­ers.

How­ever, the is­sue is dif­fer­ent with the pri­vate fi­nan­cial sec­tor. The pri­vate fi­nance agen­cies are not re­ject­ing the de­sired fi­nance re­quests. How­ever, the in­ter­est rates are sky-high which a chan­nel part­ner can­not af­ford with the pre­vail­ing mar­ket con­di­tions. The other face of the chal­lenge from the pri­vate sec­tors is no proper guide­lines for pro­vid­ing the fi­nan­cial loans. A lead­ing fi­nance agency which ap­proves loan in one city for an IT dealer is re­ject­ing the same prod­uct 30 kilo me­ter away from the for­mer.

There are still some as­so­ci­a­tions man­age to get fi­nance com­pa­nies spon­sor for their reg­u­lar events. This is a pos­i­tive sign and shows there is still hope for the chan­nel in­dus­try to grab spon­sor­ships from the pri­vate fi­nance com­pa­nies. The IT as­so­ci­a­tions across the coun­try should start im­me­di­ate fo­cus on this is­sue with ut­ter­most pri­or­ity.

“We have had a great FY 16 (Apr to Mar) wherein our biz grew by 40%+ and we have a good out­look for FY 17 as well wherein we have planned to grow at 35% on a Y-o-Y ba­sis. We have re­ceived tremen­dous sup­port from our bankers and other fi­nan­cial in­sti­tu­tions which have sup­ported us in achiev­ing these growths. We have also seen many of our part­ners get­ting re­quired sup­port from their banks or fi­nan­cial in­sti­tu­tions.” says Byju Pil­lai, pres­i­dent, In­flow tech­nolo­gies, a distri­bu­tion gi­ant in the IT in­dus­try. He also said that, in in­flow, they have fa­cil­i­tated many of our part­ners to get chan­nel fi­nanc­ing through third party fi­nan­cial in­sti­tu­tions in­clud­ing from those in the or­der of banks & NBFC’s. “We have set up lim­its to do bill dis­count­ing, buy­ers credit etc to take care of the work­ing cap­i­tal needs of our busi­ness which helps chan­nel part­ners in­di­rectly. Need of the hour is to en­sure that we spend time in the be­gin­ning of the or­der cy­cle, much be­fore the time of com­mer­cially struc­tur­ing an or­der to avoid any chal­lenges at a later stage. It is im­por­tant to be up­front and trans­par­ent with our sup­pli­ers & bankers so that we could have a col­lec­tive dis­cus­sion on com­mer­cial struc­tur­ing of or­ders. The or­gan­i­sa­tions that have fol­lowed these ba­sic prin­ci­ples have had no chal­lenges in get­ting fi­nan­cial sup­port.” Byju con­cluded.

With new ini­tia­tives like Dig­i­tal In­dia, Make in In­dia, e-gov­er­nance, Start -Up ecosys­tem push by the govern­ment and fur­ther pen­e­tra­tion of broad­band fa­cil­i­ties in all parts of the coun­try, de­mand of IT equip­ment will re­main ro­bust. Part­ners will how­ever need to en­sure ad­e­quate avail­abil­ity of work­ing cap­i­tal to ben­e­fit from these op­por­tu­ni­ties. Un­der­cut­ting of mar­gins is a se­ri­ous prof­itabil­ity con­cern which the in­dus­try needs to ad­dress col­lec­tively. IT distri­bu­tion is a highly com­pet­i­tive busi­ness. Due to in­tense com­pe­ti­tion, mar­gins are get­ting thin­ner. Of­ten re­sellers are forced to of­fer larger credit pe­riod to their cus­tomers. This is putting stress on their work­ing cap­i­tal man­age­ment. We at X10 of­fer work­ing cap­i­tal so­lu­tions to ad­dress this con­cern and that too col­lat­eral free’.

“Part­ners are es­sen­tially traders who have in­vested rel­a­tively less cap­i­tal in the busi­ness. Their bal­ance sheets are of­ten over lever­aged lead­ing to credit con­cerns. Low mar­gins fur­ther raise con­cerns. Banks are hence of­ten cau­tious and take small ex­po­sures only. Fund di­ver­sion is an­other risk that lenders see” says Asim Hus­sain, Head (Sales), X10 Fi­nance, an or­ga­ni­za­tion ac­tively in­volv­ing in fi­nanc­ing the chan­nels.

He fur­ther adds that presently, the in­dus­try runs on back to back cred­its i.e. the ven­dor gives 30-45 days credit and the part­ners of­fer sim­i­lar credit to their cus­tomers.

“Re­quire­ment of sub­stan­tial own cap­i­tal has not been there. There will be a con­sol­i­da­tion at some stage where weaker part­ners will make way. Im­prove­ment of mar­gins will en­cour­age part­ners to in­fuse cap­i­tal and man­age fi­nances bet­ter which will im­prove this sit­u­a­tion.”, he fur­ther added. Ex­plain­ing fur­ther Asim says We look at the cash flows of the part­ners rather than col­lat­eral. Our process looks at 1) Man­age­ment qual­ity and ex­pe­ri­ence, 2) Fi­nan­cial anal­y­sis wrt re­pay­ment ca­pac­ity based on cash flows, 3) Trans­ac­tional his­tory with ven­dors and 4) Fu­ture growth po­ten­tial. We sanc­tion any­where be­tween 20 lacs to 500 lacs col­lat­eral free. We also sup­port part­ners for se­lected projects.”

“Re­quire­ment of sub­stan­tial own cap­i­tal has not been there. There will be a con­sol­i­da­tion at some stage where weaker part­ners will make way” ASIM HUS­SAIN, Head (Sales), X10 Fi­nance “We have re­ceived tremen­dous sup­port from our bankers and other fi­nan­cial in­sti­tu­tions which have sup­ported us in achiev­ing these growths. We have also seen many of our part­ners get­ting re­quired sup­port from their banks or fi­nan­cial in­sti­tu­tions” BYJU PIL­LAI, Pres­i­dent, In­flow tech­nolo­gies

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