Ilkka Tales is on a mission to bring a new breed of finance to Australia’s IT channel.
For the past three years, the former chief executive of Anittel, once Australia’s fastest-growing reseller group, has provided working capital alternatives to regional businesses through a global Australian financial services startup, Greensill Capital. Australian Lex Greensill founded the working capital disruptor five years ago; it now has 150 supply chain finance specialists globally.
Tales says supply chain finance is the best of both worlds: suppliers are paid sooner while resellers (or their customers) have longer terms. Everyone wins when they collaborate on a common payments technology platform, he claims.
“We have Aussie resellers signed up as suppliers for clients,” Tales says. “Those resellers get their money earlier and because they agree to longer payment terms [with their customers] their relationship is stickier.” He says Australian businesses turning over more than $50 million a year are on its books.
Tales reckons Australia’s channel is four years behind Europe and US adoption, which leans to heavy industries such as manufacturing, oil and gas, and telecommunications.
Vodafone globally adopted the supply chain finance platform from Greensill’s partner, Taulia, for its $US10 billion supplier finance program. “So 85 percent of [Vodafone] suppliers are getting cash daily rather than waiting for normal payment terms on their invoices,” Tales says.
Greensill claims $US12 billion capital to 900,000 suppliers in 50 countries. It issues supplier-finance notes (like bank bonds) based on purchase orders in its system to raise funds on capital markets, and in 2014 acquired German NordFinanz Finance Bank AG. “Other banks globally buy those [purchase order] notes because they take a clear line of credit into companies such as Vodafone,” he says.
But underpinning Vodafone’s solution is Taulia’s peer-to-peer payments platform. It combines electronic invoicing, supplier management portal and ERP. “The development of supply chain finance programs are helping drive economic growth by unlocking vital liquidity trapped in supply chains,” says Tales.
So impressed by its ability to release much-needed cash flow – a leading cause of failure for early-stage businesses and SMEs (see box) – US President Barack Obama recommended it in 2014 for the SupplierPay early-payments program that encourages big corporates to pay their smaller suppliers faster. Tales says all actors in the channel owe it to themselves to consider a supply chain finance solution. “If your customers are coming to you and asking for longer payment terms, ask if they have a supply chain finance program in place”.
The channel’s bank
Distributors have long been the banks of the channel, supplying product to resellers on credit.
A common piece of feedback from CRN Fast50 companies has been the importance of distributor credit in their early days – in this way, disties have helped many of Australia’s resellers grow successfully. Channel partners often shop around distributors based purely on credit flexibility, so it should come as no surprise that some disties have begun offering a range of innovative finance programs.
Westcon-Comstor, for instance, established its own captive finance company to seed its resellers as they offer cloud and on-demand services. “The discussion is no longer, ‘Do I pay cash or [ask for] leasing?” says Westcon Financial Services sales director Mark Hegarty. The business arrived in Australian in late 2016, underpinned by Westcon’s South African parent company, Datatec.
Resellers creating their own intellectual property (IP), by knitting Westcon-supplied products and services into their own platform, can access distie purchase order finance, speeding time to revenue.
“The reseller may wait three years for his money back on the box, plus he hasn’t been paid for his IP. Our solution allows him to bring the cashflow and revenue forward so we unlock the value in the purchase order.”
Hegarty says the interest rate is comparable to a lease. But because Westcon is deeper into the transaction and a beneficiary, it may extend finance when a bank would baulk. “If you’re looking at growing your business in 2017, even if you don’t have an order now, have a chat to us and we can start the process and education of understanding what’s available,” Hegarty says. “Then when they go into a contracting piece with a client they’re in a better place to understand how to structure.”
Hegarty says he was surprised recently when an emerging reseller won a $3 million contract with a bank for security and battery power on the back of Westcon’s purchase order finance. “They’re nimble and smart, which encouraged the bank to give them the business, but the challenge was they had to come up with cash they otherwise wouldn’t be able to access.”
Next page: Self-insurance flexibility
Self-insurance flexibility
Synnex Australia is famously flexible for its finance terms, a situation chief executive Kee Ong attributes to its closeness to the channel and its resellers. “We are a bit more flexible, but the main thing is we try our best to understand their business model and how we can help,” says Ong.
“We review every customer according to how they set up their company, structures and the creditworthiness of the directors.”
Synnex is self-insured, which gives it greater freedom to take a punt on new players. “That’s a big plus; we don’t go to third parties to tell us what to do. And we make that call locally so when the resellers have big deals, on a deal-by-deal basis [we’ll consider it] over and above their credit limit.” This has helped schools and education resellers responding to demand spikes that stretch their credit.
But getting to know you is Synnex’s strength, so be prepared to explain your business to secure the best terms. “We’re very old-fashioned: we talk to them to see how they set up the company and understand the business model. Some tick all the boxes and do the right things and some have a learning curve.”
Ong says there’s been a big increase in the number of new businesses starting out with Synnex. “We see a lot of [services providers and startups] and managed services companies.” This also introduces risk because many start-ups lack business skills.
Ong detects a tightening of credit in the year ahead as businesses batten the hatches against potential global, macroeconomic headwinds. For resellers that find themselves in difficulty, especially during transformation, Ong advises: “Come to us and we can help run the business in recovery mode until they can get their business back”.
Avnet’s credit power
Avnet uses its global access to funds to sluice more liquidity through the supply chain under its ‘Powered by Avnet’ brand, says Darren Adams, Australia and New Zealand
vice-president and general manager.
“Money is the WD40 of the IT supply chain,” Adams says. “In this cloud- and services-driven world where opex (operational spending) takes over capex (capital spending), how money is used is becoming more relevant for how IT gets to market.”
Avnet’s local chief financial officer, Sandeep Mehta, says Powered by Avnet “eases capital constraints” of resellers transitioning to opex business models. Avnet accesses its own capital sources and those of Wells Fargo (formerly GE Capital) for Apple products and IBM Global Finance.
“It’s a pedestal for smaller partners to match up to their larger counterparts. They may be technically strong, and where we reinvest our capital in software, hardware and even services we enable them to stand up to their peers,” Mehta says.
Avnet puts its capital in the hands of resellers for up to four years to enable them to see a return on their services offerings. “That’s a long time for a distributor not to seek a return,” he says. “When we can embed more of our services, that ticks the box for us to put the capital out for a longer.”
And freed of the burden of directors’ guarantees or other aspects of leasing, the reseller can focus on providing better services, says Avnet’s Adams: “Finance can be taken beyond a commodity and part of a solution”.
Avnet expects its Powered by Avnet finance book to grow this year. “Distributors in turbulent times play an enormously important role in aggregating and providing knowledge,” Adams says.
“We’ll need more extended-terms programs and more customisable financial capabilities. And we’ll do that through new partners, solutions and offerings.”
The big easy
Resellers favour suppliers that make it easy to do business, says Dicker Data chief financial officer Mary Stojcevski. “Reseller partners want a high degree of ease of doing business. We can establish a trading account, provide an approved credit limit and have the reseller up and running in under 24 hours.”
Once on-boarded, the reseller’s needs change to a distie that will support its trajectory, she says: “Again, ease of doing business is key as they grow and need their credit limits increased to enable them to win more business and compete more effectively at a higher level”.
And while new resellers were traditionally on cash-on-delivery terms, she says they now mostly start on credit, with only about one in 10 resellers paying cash. A big advantage to drawing on distie credit is it’s a “free, value-added service” to the channel, Stojcevski says. She expects credit to the channel to grow this year, especially for SMBs.
“Financial offerings are crucial to attracting and retaining reseller partners. Finance can ultimately be the make-or-break component of a deal for resellers and ensuring we remain competitive in this aspect of our business is key to our continued growth.”
Case study: Learning from Dick Smith's flop
Back in the ’80s when iconic Aussie entrepreneur Dick Smith had a fleet of delivery trucks emblazoned with the phrase, “The Electronic Dick” crisscrossing the country, the outlook for the emerging electronics retail sector was booming.
Fast-forward to 2016, after several transfers of ownership and a failed private equity buyout that loaded up the venerable retailer with so much debt that it crashed and burned spectacularly, and the outlook is in retreat.
After nearly 50 years supplying hobbyists, Dick Smith Electronics flopped in January 2016, ejecting 2900 employees to the dole queue and erasing its $520 million IPO capitalisation just four years before (supermarket chain Woolworths had owned it for 30 years prior to its trade sale).
The subsequent loss of $260 million owed to creditors further cast a pall over the sector. One of the brand’s most valuable assets was its name and online store, sold to rival Kogan for an undisclosed sum.
Euler Hermes, a company that specialises in trade credit insurance, attributed Dick Smith’s collapse to structural changes, including:
- Consumers migrating from shopping in-store to online.
- Consumers moving from CDs and DVDs to digital downloads.
And while Dick’s demise gave other electronics retailers breathing space, long-term issues remain, Euler Hermes says. “Structural issues and an overcrowded marketplace will increase the likelihood of further corporate failures.”
Any shock to house prices, sudden interest rates lift or a disruptive entrant (especially online) could trigger more failures, it warned. Despite the storm clouds, Euler Hermes regional commercial director Gordon Cessford advises caution.
“There are always good risks even in bad times,” Cessford says. “It is important for corporations to pay efforts in due diligence with whom they are trading, evaluate credit risks and have added protection through third-party insurance on receivables.”
Fact file: Cashflow crunch
Of the 225 information, media and telecommunications businesses that went bust last year, inadequate cashflow was blamed in half (112) of cases.
These ICT businesses weren’t alone. Of the 9426 external administrators’ reports analysed by the Australian Securities and Investments Commission, cashflow was to blame in 4318 (46 percent) of cases.
Back to ICT company failures, and poor strategic business management was the No.2 cause of insolvency (106 cases) while trading losses, and poor financial control followed. Failed IT businesses were most likely to have just a few unsecured creditors (most owed less than $250,000 each) and 72 owed them $500,000 to $5 million.
A sobering statistic was that 91 percent of unsecured creditors received nothing from winding up.
So the lessons for credit providers are to do due diligence of prospective customers, understand their business model, stay close to debtors, and help them to trade through difficulties – because you won’t get anything when they fail
-1.jpg&w=100&c=1&s=0)
.png&w=100&c=1&s=0)
