Benefits of Packaging with FinancingBy Jessica Davis | Posted 2008-09-26 Email Print
Solution providers looking to close deals and get paid upfront from cash-strapped customers should turn to financing and credit options. Despite the Wall Street meltdown, plenty of money still circulates in the channel credit system.
How credit and financing options benefit solution providers is it gives them the ability to close a sale without the customer having to drain cash reserves to make the upfront payment.
"We try to offer [financing as an option] as much as possible," says Brent Smith, president of ANI Direct in Addison, Texas. If there's a customer whose budget cycle doesn't begin for another six months, "they can do business with you now but not pay for six months," Smith points out. Such a tool can save the deal.
But in spite of the business benefits, only about one-third of VARs are involved with financing at all, according to Pucciarelli.
"Another third has decided not to be involved and a third does not understand what they don't understand," Pucciarelli says.
These VARs may be missing the boat. The use of technology financing is growing – particularly software financing – with or without VAR participation. Those VARs who make financing a regular option on the solutions they offer are more likely to close the deals than the VARs who don't. It's certainly something that end-customers are latching onto.
"It was client demand," says Tony Chillino, owner of Nu-Age Industries, a VAR in West Nyack, N.Y. Chillino's companies use distributor Ingram Micro's financing offerings along with other third-party finance companies to offer finance options to customers. Chillino owns the VAR company plus a separate leasing company. "For me to remain competitive with other companies and avoid my deals going somewhere else I needed to provide financing" to customers.
Finance programs like those offered by distributors Ingram Micro, Tech Data and other players in the technology space are making it easier for VARs to quickly get a leg up in the finance arena by offering various options that allow the VARs to extend finance options to their end-customers.
Both Ingram Micro and Tech Data say they have financing representatives available for VARs to talk to about putting together financing packages to offer to customers to facilitate different kinds of deals. "We can work with resellers that haven't done it before and line them up with the best options and help them explain it all to the end user," says Kelly Carter, director of credit for Ingram Micro’s U.S. operations.
Tech Data says financing can help small VARs act like big ones. For example, the distributor was able to finance a $6 million deal for computers at a retail giant for a small VAR by using the credit-worthiness of the end-user company rather than the VAR. On its own the VAR could never have qualified for the deal. Tech Data says it has about 85 people on staff to help VARs figure out financing solutions for their deals.
"It's a different market in terms of credit these days," says ANI Direct’s Smith, who only started offering financing to end customers two-and-a-half years ago when the "light bulb went off."
Distributors and banks aren’t the only sources of credit for solution providers and their customers. Technology vendors such as IBM, Cisco Systems and Microsoft offer generous financing terms.
Microsoft, for instance, is rapidly expanding its credit program, providing financing to solution providers that put together deals that need only include one piece of Microsoft product. Microsoft will underwrite more than $1 billion in solution provider sales next year, the company says.
Smith has done financing through Cisco Capital, saying it’s got a quick automated system that can approve applications for less than $225,000 in under a minute.
"That's all you need. The customer name, two documents signed and Cisco turns around and funds the deal in 48 hours," he says. "I do more deals, I do bigger deals and I get paid upfront."
For VARs looking for the place to start, Smith advises that success won't happen overnight. "You have to get sales people comfortable talking about it. And once sales people realize that they can make more money using it, they'll start talking about it."