Are your customers a safe bet?

How well do you know your customers? That's a question distributors and resellers are increasingly having to ask of themselves as they look to minimise their chances of suffering financial hurt from customers that renege on payments.

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By  Andrew Seymour Published  March 14, 2009

How well do you know your customers? That's a question distributors and resellers are increasingly having to ask of themselves as they look to minimise their chances of suffering financial hurt from customers that renege on payments.

This dilemma is yet another offshoot of the radically different market environment that channel players in the Middle East are now present.

A lack of any real visibility in terms of trading expectations has created an alarming sense of uncertainty in the market since the turn of the year, leaving the channel to rely more on instinct than methodology when calculating sales demand.

But that is not the only aspect of the business apparently calling on intuition as much as any systematic measures that might be available. Companies are now having to scrutinise the payment terms and collection methods afforded to every single customer account. That is especially true in the distribution field, where the nature of the industry only requires a sudden run of small debts, or even a single medium-sized debt, to cause some serious damage.

While it takes a brave organisation to turn down business that is there on the table, an increasing number of distributors claim they are now prepared to take this action if the net effect is that it leaves the balance sheet in better shape.

It is well-known that the cost and coverage of credit insurance is not exactly as alluring for distributors as it was, perhaps, half a year ago. Most distributors are therefore having to depend on their own internal risk assessment practices when searching for protection from customers that may default or are slow on payment. That is leading to greater examination of the trading history and liquidity of customers, among other things, in a bid to lessen exposure to vulnerable accounts.

Distributors in Dubai are certainly on high alert as talk that more market casualties are imminent continues to mount. Just last week, speculation emerged of three IT traders, including one based in Sharjah, that have defaulted on payments, sparking gossip over who will be next to succumb.

For many distributors, the demise of one trader can often provide a strong clue of the next outfit likely to encounter difficulties, such is the intricate buying and selling culture that exists between companies.

There is even said to be a list, circulated between a handful of wholesalers and sub-distributors, that contains the names of at least 15 resellers expected to disappear over the next six months because they are seen as high-risk for the very reason above. Interestingly, a source who claims to have seen the list says the three traders rumoured to have gone under last week were on it.

The structure of the channel in Dubai makes it far more susceptible to witnessing a ‘domino effect' when one company buckles than any other market in the region. While nobody is completely sure of how destructive this could be, the fact remains that with companies transacting between each other - or purchasing from a mother organisation that breaks bulk - the chain can collapse if one element of it is removed.

You only have to look at the situation surrounding former HP re-exporter Micropoint, said to be a sizeable player at its peak. Resellers and sub-distributors that had a trading relationship with the company are understood to have lost money, while master distributors such as Jumbo Distribution remain significantly out of pocket.

Contrary to what you might expect, however, distributors aren't suddenly abandoning relationships with the trading community. With much of the business now being driven on a cash basis, some argue that it actually poses less of a risk than the systems integration or VAR channels, which have traditionally been regarded as the safer bet.

Resellers in that environment are having to contend with enterprise projects being postponed or cancelled as end-users revisit their IT budgets. That has left resellers desperately chasing payments or having to accept that they will receive instalments as and when the customer elects. Either way, it potentially raises major cash flow questions, which is making distributors that little bit more cautious about which accounts they get into.

Distributors and resellers in the Middle East have always experienced their fair share of fun and games when it comes to collecting payments and managing risk, but now is the time when there could be serious repercussions for those that take those practices lightly.

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