Cash only, please

Giving credit is no longer an option for nervous IT dealers

Tags: Dubai Computer Traders GroupUnited Arab Emirates
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By  Andrew Seymour Published  January 17, 2010

Bearing in mind the mess that invariably gets left behind when a stricken reseller does a runner - not to mention the general air of suspicion clouding the market since business took a turn for the worse last year - it was only going to be a matter of time before talk of IT traders switching to cash sales grew a whole lot louder.

The very foundations of the regional IT market might have been built on credit, but it is clear that times are changing, especially in the Dubai channel.

As dealers contend with a lack of transparency over the financial strength of their customers and battle to overcome the pressures they face each day, many are reasoning that there is really only one option left to take if they want to ensure they get paid in full.

Last week the Dubai Computer Group issued a circular to all its members reiterating the basic financial procedures they should carry out to avoid falling foul of the hazards that lurk in the market. Supplying against LPOs when selling on credit, ensuring that security cheques can't be misused; such practices are commonplace but it doesn't hurt to be reminded it seems.

Yet a growing number of traders are said to have already decided that for pure dealer-to-dealer business - which it is suggested could account for more than 40% of business in the Dubai channel - the only transactions they'll agree to are the ones where they see the currency upfront.

Whether it's an immediate bank transfer, current dated cheque (CDC) or merely hard cash (and, yes, connotations of traders striding up and down Computer Street with briefcases full of bank notes aren't as wide of the mark as they might seem!) the only guarantee of avoiding financial despair is to collect the payment before the goods are dispatched.

Sources say some of the most influential names on Computer Street have resorted to this policy for a number of months now.

One big hardware re-exporter, which has been in the Dubai market for more than two decades, now does 90% of its sales on delivery-upon-payment terms, for instance. The only credit it extends is to customers with which it either has a long-term trading relationship or considers an exception.

The belief is that more traders will go down this route as they weigh up the amount of exposure they have to potential bad debts.

While a propensity for cash sales does mitigate the risks of dealing in a highly volatile market place, it is also a sorry indictment of how fragile the situation in the channel has become.

Of more concern is the prospect that if credit isn't allowed to flow freely, servicing day-to-day trade and winning new business opportunities becomes considerably more difficult. And that's an issue that has implications for other tiers of the supply chain - vendors and distributors most notably.

For now though, traders will quite rightly argue that their options are limited. Some even think that a greater degree of prudence is not actually a bad attribute for the channel to exhibit in the context of the current climate.

"Distributors are still giving credit, but it is subject to insurance coverage because they are not as liberal as they were before when they'd give you any amount you wanted," said one Dubai dealer this week. "That has certainly contributed to this situation. Things have been tightened up and dealer-to-dealer everybody is very careful. It is a good sign for the market."

That may well be true, but the question of whether the need for protection outweighs the natural tendency to secure new business at any cost is yet to be conclusively answered.

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