As predicted in earlier posts, distributors are now using a new weapon in their fight to retain reseller accounts – Smart Credit. Vendors should take note and ensure their programs can underpin this strategy, as smart credit will become a critical success factor.
This week CRN reported that Bell Micro will be granting more credit to the VARs that demonstrate greater loyalty:
“Bell informed 600 resellers with credit lines between £5,000 and £50,000 that credit terms would be extended from 30 to 45 days if they paid via direct debit. Additionally, VARs using upwards of 30 per cent of their credit lines will have them increased by 25 to 100 per cent.”
Bell is smart to use its credit in this way to reward loyaty and encourage resellers to switch their orders to Bell. Once hooked on extended credit, many will find it difficult to switch back to the other broadliners who have adopted much cruder tactics.
How should vendors react?
The key issue for vendors is market access. If their distributors are able to direct scarce credit capacity at the parts of the channel that reach targeted end users, then vendors should be partnering in the tactic. This could include:
- Extending credit in line with growth in volume of targeted resellers
- Co-funding credit insurance against the extended credit terms to targeted resellers
- Co-funding the financing costs of extended credit to targeted resellers
Why aren’t all the distributors using smart credit?
Critics of this approach argue that it slows down the cash-to-cash cyle :
Nick Tiltman, credit director at C2000, said he was “bemused” by the accusations – Quoted in CRN:
“Extended terms slow up cash in the channel and there is enough of that happening anyway,” he said. “Why would you want to exacerbate that? If resellers are not using the credit lines that they already have, I cannot understand Bell’s reasons for doing this.”
The answer is a little bit of a chicken and egg. End customers need the credit to enable them to commit to making a purchase. Resellers need the credit themselves to be able to offer it. So no credit available means lower demand, and little use of existing facilities. Bell’s scheme means resellers can offer extended credit to their customers with confidence and make the sale.