Credit, Money Strategy: Easing the Cash Flow

By Alison Diana  |  Print this article Print

Small businesses including IT solution providers have found it tougher to get the money and credit they need to operate their businesses, especially if they've moved entirely to services. Here's a look at the state of financing for VARs and MSPs.

Easing the Cash Flow

Like many young solution providers, Serac Technologies was forced to rely extensively on cash during its earliest days. This hampered the company’s ability to grow: In some cases, clients were willing to partially pay upfront, said Kurtowicz.

"In every transaction we did with a customer, we had to figure out, 'How do we pay for this?’" he said. "How do we pay for software that customers are buying?"

Financial relief came in the form of vendor and distributors’ financial programs. National distributors such as Ingram Micro and Tech Data, as well as regional and specialized distributors, offer an array of leasing and finance options, some of which are based solely on the customer’s credit. VARs also may turn to factoring and flooring programs, which often charge higher interest, said Avnet Technology Solutions’ Kidd.

"Generally speaking, our credit criteria and lending standards haven't changed as a result of the economic climate. We have seen increased demand for alternative financing including end-user financing and more recently leasing, but the criteria and lending standards are the same as they were," Kelly Carter, director of credit at Ingram Micro U.S., told Channel Insider. "End-user financing has been a great option for solution providers who may have been hit by the economy."

Increasingly, solution providers are tapping Avnet Technology Solutions’ receivable services program, an outsourcing billing, collecting, and risk-management service that is a "low-cost alternative to banks’ accounts receivable financing or factoring programs," said Kidd. "This program significantly reduces risk for solution providers because they are able to rely on Avnet Technology Solutions' financial strength. Solution providers tend to use the Receivables Services program for larger transactions because they don't have to borrow from their bank/credit to pay the invoices before they receive payment from the end-user," she said.

In Serac Technologies’ case, working with one distributor’s financial group allowed it to build a positive credit history. When the solution provider switched distributors, it received a larger line of credit, said Kurtowicz. Serac Technologies moved to another distributor a year later and once again saw its credit-line grow, he said.

"It certainly wasn’t our strategy for changing distributors, but it was a side effect. We didn’t go to all three and say, 'Who will give us a better deal?’" said Kurtowicz. "We were able to leverage the fact – almost as a selling point to switch distributors – how much they would lend us. We were revaluated with a new balance sheet at each time."