Third-Party Lenders IBM, De Lage Landen Cut Channel Credit

D&H's Flex Credit program with De Lage Landen was launched in June 2006 and targeted small solution providers who previously paid through credit card. Back in 2006, D&H expected that up to 3,000 solution providers might utilize the line, but there were only 29 active users in the program, according to Joe Chaudoin, director of credit and financial services at D&H.

"I'm a little disappointed that we did not get as much activity out of it, but a lot of these guys are cut-and-running on small customers. It's our bread and butter, but it's not really theirs," Chaudoin said.

D&H said it extended a net terms account to Know Problem, but Bidwell, like Tipton, has to spend time looking to secure another credit line. He is concerned that it will be difficult because he's a very small business (around $250,000 in annual sales).

"How many applications and fees will I incur trying to get financing? I'm up 47 percent [in sales] over last year, but who knows how this [cut] will affect me. You get a couple of credit cards at $5,000 each and it only goes so far," he said. "The biggest problem I have is giving one of my customers net 30 terms and they take 60 days to pay. It's tight everywhere, but I can only juggle it myself for so long."

Westcon Group's Chuck Thropp

Thus far, solution providers' credit issues seem to be contained to facilities through third-party companies like DLL and IBM. Those VARs that have credit facilities directly with distributors said those lines are stable. If it seems odd that most distributors are claiming they can increase credit lines, or at least keep them steady, through economic turmoil, it may have to do with how they've run their businesses the last few years.

For example, Westcon Group restructured its debt about 18 months ago to ensure that it would have the flexibility to work with solution providers that needed some credit help, said Chuck Thropp, CFO for the Americas, at Westcon Group.

"We made sure we cut a deal that allows us to have that flexibility. Because we have such strong relationships with our own banks, we have enough working capital to work with customers. If we didn't have those relationships and have strong working capital ourselves, we wouldn't have that flexibility," Thropp said.

Westcon Group has increased its own credit facility with VARs by $70 million over the last 12 months, Thropp said.

In other words, Westcon Group and other distributors haven't run their businesses like certain airlines or auto manufacturers. And that's good news for solution providers.

"I'm not sure the IT channel is any different when it comes to making credit decisions. We've had a pretty sound credit evaluation process in place," Thropp said. "We don't see the pulling of credit because of what's going on in the economy. We see it as these are our business partners. We're trying to work hard to make sure we get deals done."

However, most small VARs cannot rely on one distributor's credit line to finance purchases. The bad news is that it could get even harder to secure third-party credit.

"There is money to be borrowed and lent. But [VARs] can expect some of these third-party guys will tighten down, especially for the small dollars," Chaudoin said. His advice to VARs is to seek credit with a small number of lenders and ensure that you're a good customer to all. "You might do better by not having all your eggs in one basket, but not in a lot of baskets either," Chaudoin said. "Pick two or three good [companies]."