If profitability is the measure of a business’ success, credit is the lifeblood that keeps it moving.
Today, Cisco Systems financing arm—Cisco Capital—is launching a new
initiative to educate its partners on the changing dynamics in their
customers budgeting and financing, and show them how to use the credit
it provides as a means for closing new technology deals.
“Our mission is to ensure that the customer remains current with the
latest technology. A bank’s mission is entirely different,” says
Maryann Von Seggern, director of Cisco Capital.
Cisco is one of the many vendors pushing their financing options as
means for keeping theirs and their partners’ sales flowing. By using
its vast cash reserves – now totaling nearly $30 billion – Cisco wants
its partners to know that customer’s need for financing to pay for
their technology investments is more critical than ever and could make
the difference between them getting an order or not.
“Solution providers are technical guys; they want to talk about the
speeds and feeds. But if they don’t change the way they’re selling,
they won’t get deals,” says Von Seggern.
Since the credit markets seized in September 2008, businesses of all
sizes have lost access to credit, which they need for everything from
investing in new infrastructure to covering cash flow gaps to pay for
inventory and staff salaries. Particularly hard hit are small and
mid-sized businesses, which typically do not carry cash reserves on
their balance sheets and have limited access to lines of credit. Many
small businesses use credit cards as a means for paying for capital and
operational expenses.
When you consider than credit card companies and banks have
withdrawn more than $2 trillion in credit card liquidity in the last
six months, you can quickly see that the pool of available credit is
shrinking.
Solution providers are not immune to the credit crunch. While
participants in the Channel Insider 2009 Market Pulse survey say access
to credit hasn’t changed much in the last year, anecdotal evidence
exists showing the types of credit available and payment terms are
getting much tighter. Some solution providers report having their lines
of credit changed without notice because a late customer payment caused
them to miss a payment to their bank. Others are seeing their customers
cancel, delay or scale back orders because bank financing fell
through.
Financing, leasing and extended payment terms are nothing new to
technology sales. All of the major vendors have financing divisions to
provide credit to their customers and partners. However, solution
providers haven’t always leveraged these credit options, instead
relying on their customers to figure out the way they’re going to pay
for a purchase.
When the credit markets seized, end users were forced to look for
alternatives for paying their technology investments. Cisco says it
sees a trend where the end user dragged its solution providers into the
credit and financing conversation. As cash disappears, businesses have
an easier time paying for purchases out of their operating budgets
(ongoing expenses) than their capital budgets (one-time expense).
Through financing, a customer essentially creates a payment system
similar to the billing structure of a managed service engagement.
Over the last quarter, several of the large vendors have promoted
their credit services and announced special financing options to spur
sales. IBM, Hewlett-Packard and Dell, for instance, are all offering
low- and no-interest financing on hardware. Last summer, Microsoft
started teaching its army of partners about its financing options, in
which it would underwrite deals even if they only included one piece of
Microsoft product. And distributors such as Ingram Micro and Tech Data
have created new portals to show solution providers how to finance a
technology purchase.
Cisco’s aim in its financing awareness push is more than just
showing solution providers how to use credit to seal a deal today, but
how credit helps the ongoing engagement with the customer. Cisco is now
sending its partners reports on their mutual customer’s credit
accounts, showing the partner when a loan is coming to term and for
what equipment. Cisco says that gives the solution providers the
opportunity to plan conversations about equipment replacements and
maintenance renewals. In other words, Cisco wants to turn credit into a
sales renewal tool.
Several vendors report feeling as though their credit and financing
programs are falling on deaf ears. Part of it may be a lack of
understanding about how credit programs work and how they benefit both
the solution provider and the customer. Part of this may be true
because selling credit is not natural for a technology-oriented company
such as those of solution providers. And part of it might be that
there’s nothing in it for the solution provider; yes, they get paid on
the deal, but the vendor captures all the interest payments.
The top 10 wealthiest vendors are sitting on more than $100 billion in cash reserves,
and most are willing to use them to underwrite channel sales. The $787
billion stimulus package President Obama will sign today may stabilize
the financial services industry, but it will be months before to logjam
clogging the credit markets is broken. Solution providers should take
the time to learn about their vendors’ financing options and how they
can leverage capital services to their and their customers’ benefit.
Lawrence M. Walsh is vice president and group publisher of Channel Insider.
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