Coping with credit

3 May 2010

Challenging economic circumstances, particularly on the African continent, have called for a change in the way hardware distributors do business. Tarsus Technologies sales manager for Africa, Jaco Roux, looks at the impact of the world economic slowdown on the continent.

There’s a need to change business practices, to alter perceptions about doing business on credit and to re-evaluate the risks that are involved in granting credit to resellers, especially in sub-Saharan Africa.

Like most distributors, Tarsus does not offer its customers credit terms unless they have credit cover from a credit-vetting agency.

For the most part, this is nothing more than a piece of red-tape that resellers have to deal with in their daily lives, however, the onset of the global recession has meant that many Sub-Saharan African countries have seen a serious withdrawal of cover from credit guarantors.

The funding grants that certain countries received from Western countries have also been drying up over the last eighteen months and there has been a noticeable pinch felt by all.

The reality of the situation is not all dire if both resellers and distributors are pragmatic and transparent about their business practices and are prepared to change their mindsets when it comes to fiscal relations between entities involved in the hardware supply chain.

Previously, distributors extended credit facilities to resellers on an individual basis, which made it possible for them to do business with large corporations and government entities that have 30- to 60-day billing cycles.

With credit becoming more difficult to obtain and expensive to finance, and with it becoming less viable to do business simply on a handshake, there is a definite need for reliable credit-vetting agencies to become involved in the African marketplace and for credit not to be the first call for payment method, but rather an available alternative.

Addressing the issue by implementing strict use of credit vetting agencies might solve a part of the problem, however, it would be easier to address the issue at its root.

Realistically speaking, the availability of credit might worsen and resellers need to educate their customers on the costs involved in obtaining credit, and the risks involved for them throughout the duration of the transaction.

Customers need to validate and analyse their deals more closely and more intelligently and need to be wary of making sales for the case of an immediate turnover.

This requires them to be aware of the long-term risk and keep in mind the eventual margin. So, our message to the market is to rethink their cash flow, ensure their costing model is correct and attempt to change perceptions of how credit-worthiness works.

There is a need for customers to start understanding that the hardware delivery phase of the transaction should be cash on delivery, while the set up, installation and value-adds are the sales that would be better served as being subject to negotiable payment periods.

Roux goes on to explain that this is basically another facet of learning to manage credit better.

Instead of having a credit arrangement with a few distributors for nominal amounts, there is the option of requesting that the credit that a reseller has with a number of distributors be collated and better served at one distributor, creating more beneficial fiscal security.

There’s also a need for resellers to be aware of the risk that goes along with doing business with a distributor that’s willing to give unsecured credit. It might seem worthwhile, however, bear in mind that in Africa, there is no legal recourse against a corporation that owes money, except to liquidate that corporation.

Involvement in this kind of trade, given the current economic climate, is simply irresponsible, and while Tarsus sales are undeniably suffering as a result of the presence of these kinds of undertakings, we’re able to say that the business we’re currently doing, and all the business that will come in the future is healthy, legitimate business, the kind of which, if all involved in the marketplace undertook to do, would go a long way toward easing the fallout of the recession in the Sub-Saharan African marketplace.