The Pros And Cons Of Using Charge Cards

More VARs are using corporate credit cards to pay for purchases through broadline and alternative suppliers than any other financing option. And credit card charges were a close second among solution providers buying from specialty distributors.

About 40.5 percent of broadline customers said they use corporate credit cards to finance orders. Other popular choices were using cash flow (33.4 percent), distributor financing (26.3 percent) and financing through business profits (24.6 percent).

Solution providers using specialty distributors most often cited cash flow (38.2 percent) but credit card (36.4 percent) and distributor financing (31.3 percent) were also popular options.

Credit card payment was by far the most popular option through alternative suppliers, where 55.3 percent of respondents said they finance orders through their corporate cards. Cash flow was a distant second with 31.5 percent of respondents.

Larry Rine, CEO of Intersect IT Solutions, Chicago, said his company uses corporate credit cards, even though he's not sure it's good business management. "It's easier," Rine said. "Most VARs or systems integrators don't have a lot that's perceived as solid equity. Asset-based lending is hugely expensive. And it's restrictive. Cash flow? It isn't there for a lot of small resellers. At some point, that brings you to [credit cards]," he said. "If Bank of America or Wells Fargo send you this company credit card with a $50,000 credit line, it's tempting to use it."

The chief drawback in using a credit card is getting end users to pay their bills before interest charges can accrue on the card, but Rine said that has not been an issue for him. "Our big [revenue] numbers are on services and not product, so it's not posing a problem," he said.

Bob O'Malley, senior vice president of marketing at Tech Data, said increased interest in credit cards could be related to the trend of solution providers purchasing more through alternative sources, such as CDW or Best Buy, where credit card usage is highest. "Maybe that's influencing overall buying patterns to where they're using credit cards more often in traditional sources," he said.

Tech Data hasn't seen a dramatic increase in credit card orders, he said. "Traditional financing is the bulk of business. Once those lines are set up, [customers] tend to stick by them," he said.

Credit cards do not account for a significant portion of financed purchases at Bell Microproducts, but they have increased enough to the point of notice, said Gary Gammon, senior vice president of marketing, enterprise products, at the San Jose, Calif.-based distributor.

"We've had to broaden what we do [with credit cards]. It used to be hardly on the radar, but it comes up a little more. Our customer base has increased dramatically in the last couple of years. We're dealing with a broader set of customers. We see it on our Apple business more often than in storage business," said Gammon.

Aaron Bass, a senior technician at Computers and Beyond, a Marshall, Minn.-based solution provider, said his company uses credit cards more than in the past but was surprised that it's the most popular choice among respondents. "We prefer a credit line with the distributor," he said. "It's easier to keep track of with all the bills that way."

David Dechant, CFO of CSI Technology Outfitters, Easley, S.C., said credit cards likely make sense for smaller resellers but the VAR 500 company needs to rely on distributor terms and a revolving line of credit because of the size of the orders it places. "I'm not surprised that more people use it because of convenience," he said. "But you have to have a sufficient savings to pay the difference in potential interest [charges]."