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Channel players voice payment concerns

Doubts over customers’ ability to finance projects leave IT providers feeling nervous

Channel players voice payment concerns
Delays and cancellations on projects have left some IT suppliers facing stock challenges.

IT providers in the Middle East admit they are more fearful of losing money as a result of customers struggling to honour payment terms than at any time before.

The regional channel has seen a number of resellers encounter serious financial difficulties this year. Many of the problems suffered by the channel have been blamed on end-user customers defaulting on payments or failing to secure finance for projects.

The pain has been felt right the way through the market to distribution and vendor level, as VARs have subsequently faced difficulties paying their own suppliers.

51% of respondents to this year's Channel Middle East Confidence Survey confessed they had ‘more concerns than usual' about the ability of their customers to meet payments.

A further 7% said they were ‘extremely concerned' about the current situation.

Although the Middle East IT channel is accustomed to payment and credit terms that often stretch way beyond the typical 30 to 45 days common in other markets, keeping on top of accounts receivables has become essential in recent months.

The general slowdown in business, coupled with pronounced cash flow pressure, has made it more complicated for companies to atone for customers that fail to meet payments.

TN Rajan, division manager for enterprise computing systems at systems integrator Alpha Data, says the severity of the issue varies from sector to sector, but suggests it has been more acute in markets such as construction and hospitality.

"Some companies are defaulting on payments and we have had some order cancellations, which has left us struggling to clear out stock because it has been bought for a specific project. I would say close to 20% or 30% of my time is spent solving this problem and collecting money."

Rajan insists cases of customers failing to meet payments have become more isolated since the beginning of the year, but admits it has contributed to general credit availability being squeezed.

The results of the Confidence Survey reveal that the channel currently rates delayed payments from customers as the greatest threat to the health of the overall market, with the exception of ongoing margin pressure.

Serjios El-Hage, regional VP for the Middle East and North Africa at networking integrator EMW, believes Middle East resellers need to show more diligence when it comes to weighing up the risk of taking on new projects that they might not get paid for.

"I would say our payment terms are pretty stringent, but you still need to pick and choose your customers," said El-Hage. "You can't go after each and every opportunity, and if it is too good to be true then it probably is. That is how we have been able to manage our receivables."

Alpha Data's Rajan agrees, saying every deal must be scrutinised. "The customer might want a good solution, but we need some assurances of money because there is a cost that we have to make. We have to assess the probability of default and actually securing at least the cost, if not the profit," he insisted.

Resellers acknowledge that cash and early payment discounts - as well as extended credit terms - offered by some vendors have provided added financial flexibility, but there are still calls for more support to be offered by suppliers.

Shahood Khan, sales and marketing director at IT distributor Empa, believes vendors are in the best position to help the channel in spite of distributors' proximity to the VAR community.

"If you look at the big vendors then a lot of the leads come directly from them and the major accounts are managed," observed Khan. "The end-user will listen more to them because the vendor is in a powerful situation."

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