IBM Exec: Now's The Time For VARs To Evaluate Financing Options

"There's a direct correlation on the financial strength of some [channel] partners and the ways they manage their working capital," said John Callies, general manager of IBM Global Financing, who offered his thoughts about the channel and the economy in an interview with Channelweb.com on Tuesday.

In these days of tight lending from banks and other financing sources, Callies said it's more important than ever to have access to working capital. He said he knew of several solution providers who have suffered serious cash-flow problems when credit tightened late last year and they had no alternatives.

Companies that are waiting for the days of widely available, low-cost financing to return will have a long wait: Callies thinks many of the changes that have wracked the financial world are permanent, not temporary. Solution providers "must re-evaluate their business model given the long-term changes in the financial marketplaces," he said.

Solution providers should decide now what strategic markets they want to focus on for the next 24 months -- he mentioned health care and utilities as promising examples -- "and then ask myself, 'Do I have the right skills for those markets?'"

Solution providers should be paying attention to their balance sheets and getting their sales, general and administrative expenses "down to a point where you can absorb a 10 to 20 percent revenue reduction [in sales] for a period of time," Callies said.

And when it comes to financing, Callies suggested that solution providers line up lines of working capital that are worth twice what they think they need to cover all contingencies. That means turning to banks and other financial service firms, as well as IT vendors like IBM that offer financing.

Vendor financing has been a hot topic of late. Earlier this year, IBM and Hewlett-Packard engaged in some one-upmanship as they dueled over which company had the most advantageous zero-percent leasing options, for example. And Microsoft resellers are up in arms over that company's new financing terms, which require that Microsoft software and/or services represent 35 percent of a customer's total financed amount.

For good credit customers, IBM Global Finance currently requires that a minimum of 20 percent of a deal be made up of its products and services, according to Callies. But he acknowledged that number can change -- as it did last fall when financial markets collapsed and IBM greatly increased the "IBM content" requirements for financing while the company reviewed its financial controls. Callies acknowledged that change was a burden for some channel partners.

The requirement was reduced to 20 percent earlier this year. "It's the right thing to do to help our partners provide the value-add on IBM products," he said.

Some solution providers have become savvy enough to make financing work for them. Callies said some buy products from IBM on 30-, 60- or 90-day payment terms, then lease the products to customers through IBM's leasing program. Because IBM promptly pays channel partners a fee for setting up the lease, but payments for the equipment purchase aren't due right away, some solution providers improve their cash flow and even make money on the float.