Understanding the Channel Business Model

By Alison Diana  |  Print this article Print

While it may be tougher for IT solution providers to land business lines of credit themselves these days, financing for end-user company purchases of technology are readily available through a host of big vendors and their separate credit arms. Here's a look at the state of financing in the channel.

Understanding the Business Model

Solution providers can use both the range of available financing options and their funding partners as an additional differentiator, executives said. Because they understand the channel and its business model, vendors and distributors are well-positioned to fund both solution providers and their customers, executives said.

"We never changed that during the heart of the crisis and we continue that—if anything we’re accelerating that pace now. We’re one of the fortunate financing companies that wasn’t forced to pull back, to change our approach. We stayed close to our sweet spot. We know our partners well. We understand our clients well. That knowledge, that understanding, that prudence, allowed us to stay true to our course," Tom Higgins, director of IBM Global Finance, told Channel Insider. "We are extremely focused on the partner route to market. We are very focused on financing small deals."

This year, leading vendors such as Cisco, Dell, Hewlett-Packard, IBM, Lenovo, and others, along with distributors including Ingram Micro and Tech Data, have unveiled new and enhanced programs designed to help end-customers buy or lease products and services from partners. HP’s leasing program, for example, saw double-digit growth in lease volume during its most recent quarter.

Although some programs are associated with a vendor, this does not mean the services solely fund that company’s products.

"We’re in the business of financing hardware, software and services. We want to focus on IBM solutions and IBM partners’ solutions. [But] we recognize they’re going to come in the flavor of hardware, software and services. They’re going to come in the flavor of hardware and tablets," said IBM Global Finance’s Higgins. "It clearly makes it simpler and faster. It’s one total solution, one check, one finance company."

Financing as a Competitive Advantage

Solution providers should add finances to their portfolio of differentiators, industry executives said. By offering leasing, for example, customers may be able to afford more projects or a larger implementation. Low- or no-interest financing through a vendor or distributor is an attractive alternative to an end-customer’s generally higher-interest business line-of-credit.

For this reason, solution providers are wise to include financing early in the conversation, said Kirk Robinson, vice president of Ingram Micro, in an interview.

"Solution providers must understand or anticipate what the end-user is going to need - and that includes financing. Engage us early in the process so we can be ready to hit the ground running. In doing so, solution providers may also uncover some new services, resources or programs they weren't aware of that could assist them in earning the business," he said. "The biggest miss we see is when a solution provider doesn't engage us early enough in the process."