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The shrinking lifeline

The shrinking lifeline

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Fall in crude prices and intense competition have brought about a lot of changes in the financial market in the Middle East. In the past few years there have been a number of the ups and downs in the economic climate impacting the entire IT industry with the Risk & Credit facilities being no exceptions. We talked to some industry experts to understand the issues that are affecting availability of credit in the regional channel and what role partners can play to re-build credibility in the market.

Since credit limits are the lifeline for business in the channel, any reductions can adversely impact the amount of business conducted and finally it turns into an on-going loop of downturn. What this essentially means is that, in a situation where the business is already slow, inadequate credit limits mean even lower sales which translate into the business having low revenue with even lower gross profit while still having to keep all operations running and hence finally they are not even able to cover costs and shut down.

K.S. Parag, Managing Director, FVC

The regional market took the biggest hit last year where the economic slowdown was coupled with banks reducing their engagement, specifically with the SMB segment and credit insurance companies reducing exposure in the market.

On top of an already bad situation, the channel also witnessed a lot of runaway cases with huge unpaid debts which further caused financial institutions and credit insurers to start viewing the IT industry as a high risk sector to finance any big projects.

“Due to the reseller runaway incidents, credit is very limited and has led to higher diligence. Of course credit insurance has been severely impacted and become very limited in the current economic scenario,” explained K.S. Parag, Managing Director, FVC.

Vendors can play an important role in improving the availability of credit. They need to take on more responsibility and move their focus from simply closing deals to actually checking the credibility of the partner or end-user, which will in turn protect all stakeholders in the chain.

Mario M. Veljovic, Gen. Manager, VAD Technologies

According to Mario M. Veljovic, General Manager, VAD Technologies, the company was able to maintain if not increase credit limits to its partners. The approach according to him is to not entirely depend on credit insurance companies but make your own assessment and gain your own market intelligence.

“Our partners were not impacted in terms of disruption from a credit perspective. We are deeply involved in all aspects of the projects we undertake. Rather than just checking on the ability of the reseller to pay on time, we also make sure that the end-user is capable of paying the partner,” added Veljovic.

“Vendors must take responsibility for product reliability and service, and also make an effort to understand the mechanics of the entire project in order to ensure smooth transaction,” added Parag.

Frederic Denoyel, CFO, Exclusive Networks

In such a situation, defining the right credit scheme seems to be of utmost importance and resellers need to actively participate when drafting the credit terms. Commenting on the role that resellers can play in shaping these schemes, Frederic Denoyel, CFO, Exclusive Networks ME said, “Reseller payment terms should be based on rational demand and they should have capability to negotiate with end users in a realistic way.”

“So, according to me, the two key elements to enable resellers to develop the right credit terms would be having a good technical team to deliver/execute projects on time along with shareholder’s equity which is enough to digest the working capital,” added Denoyel.

There certainly is a need for the channel to regain its credibility and all stakeholders must play their part to make this happen. “Resellers need to be more proactive and transparent when it comes to presenting their documents and assigning their validity, to be able to work constructively with prospective partners,” concluded Veljovic.