Opening doors on credit

Channel Middle East looks at one of the most controversial and divisive issues in the regional channel, its impact on reseller and solution provider businesses, and how distributors are opening doors on channel credit schemes to their partners.

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Opening doors on credit
By  Manda Banda Published  February 23, 2015

Can the Middle East reseller and solution provider channel survive without that credit schemes that IT distributors offer? Majority of IT distributors in the volume and value segment in the Middle East IT industry extend credit terms to partners or have developed channel financing schemes as a way of mitigating challenges that reseller businesses may encounter when financing big IT projects.

However, developments that have happened over the past few years in the region have prompted distributors to reconsider how they extend credit terms to channel partners.

According to global credit insurance firm Euler Hermes, the risk of non-payment by companies has not disappeared and caution is in order as the world continues to suffer from subdued growth and trade prospects, the company said, citing its latest economic outlook report “A rotten apple can spoil the barrel” published recently.

“Liquidity, demand and politics are the three big ticket items to watch in 2015,” said Ludovic Subran, group chief economist at Euler Hermes. “Which consumer will save the world? Will trade financing be still upbeat with a more expensive dollar? And how will political risk impact businesses’ investment decisions? These three themes underpin why the old adage ‘hope for the best, but plan for the worst’ is more apt than ever. Although we have seen a 12% fall in global insolvencies in 2014 and expect only a further 3% drop in 2015, there is still considerable risk looming ahead for B2B trade.” Euler Hermes’ Global Insolvency Index remains 12% above pre-crisis levels with timid macro developments weighing on companies’ income statements and financing restraints in several countries, the company said.

Ajith Kumar, financial director at networking solutions vendor D-Link Middle East and Africa, said one of the main issues affecting the availability of credit is the lack of financial audit reports by a reputable organisation like the Institute of Professional Finance Managers, which could derive the credit worthiness of distributors. “The major drawback is that in the GCC, financial audits for corporate firms are not yet made mandatory. The best and safest way to determine the credit worthiness of a customer is based on their financials,” he said.

Kumar added that political unrest can adversely affect credit limits in a large way for example in countries like Egypt, Syria Lebanon, which have been experiencing some political turmoil. “It gets very difficult to provide credit, even though the companies may have a long history in trade and business,” he said.

For small and medium enterprises in MENA, the access to finances is scarce due to their weak financial infrastructure, various financing constraints undermine secure investment and growth which affects the enterprises’ survival and leads to increased instability.

This in turn, said Kumar, makes it difficult to offer SME-type businesses credit terms. “Credit limits are also significantly impacted when partners explore B2B deals where the end-user expects open credit and demands extended payment terms, which the channel is unable to match, especially if they lack bank facilities,” he said.

He explained that in some African countries the availability of US dollars is very scarce and this makes it difficult for reseller companies in such countries to provide payments on time or even provide collaterals like deposits or letter of credit (LC). “Despite the global financial turmoil however, the overall credit conditions in MENA have remained relatively stable. Companies within the GCC region enjoy better credit conditions than companies in other countries,” he said.

For UAE-based businesses and individuals though, the launch of the long awaited Federal Government-mandated company to implement and operate a credit reporting system across the UAE has come at the right time.

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