Capital Gains: The Return of Channel Financing


Tech Data's Tillesen said channel financing has evolved in recent years, thanks to industry shifts around managed services and cloud. For example, he said Tech Data has seen a small shift away from floor planning (third-party financing for additional credit) and a growing interested in leasing options (including leasing directly to the customer if the solution provider prefers).

"I think the financing options today are better aligned to the reseller's needs, whether they're doing product or cloud or managed services," Tillesen said.

Vendors also are trying to adapt their financing strategies to services trends in the channel; Unitrends, a data protection and backup appliance maker based in Columbia, S.C., is one such vendor. Last summer the vendor launched its Service Provider Program for hosting, cloud and managed service providers, which enables those partners to purchase the hardware appliances and build their own private clouds.

Unitrends CEO Mike Coney said the program lets solution providers buy the Unitrends Recovery appliances and pay the purchases off on a monthly basis; that way, they can avoid big capital expenditures and cover the cost of the hardware in a manner similar to their own recurring revenue model.

"If partners are using a recurring revenue models," Coney said, "then we want to help them and deliver the product to them in flexible model."

Still, as VARs shift more toward their own services and rely less on product sales, they'll need help from finance partners to make the transition from capital expenditure sales to smaller, recurring revenue from operational expenditures. Paul Bay, president of Ingram Micro North America, said it's a challenge for solution providers to, for example, move from $100,000 a month in product sales to just $3,000 or $4,000 a month in recurring services revenue.

"We're seeing more and more requests from partners who say, ‘Can you help me bridge that gap between my physical goods sales and now my recurring revenue sales from a cloud standpoint or a services standpoint"," Bay said. "I think those financing options will continue to change and develop on the needs of their businesses. Being able to help subsidize and support them [in their transitions] is important."

For more on how financing options are adjusting to recurring revenue models, stay tuned for Part 2 of our Finance Week Series