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HP Reroutes SMB Financing

Hewlett-Packard plans to redirect channel financing funds supporting SMB market initiatives to smaller solution providers that need more extended credit and flooring.

In the process, those funds will be diverted from larger, well-heeled partners that may have been using the funds in ways not originally intended by HP.

The changes also bring distributors more into the SMB financing loop. In the past, the credit was meted out for purchases through distribution, but funds flowed from HP directly to VARs. Now the funds will be processed by Ingram Micro, Tech Data and Synnex, which can work with third-party financing companies or come up with more creative programs aimed at attracting solution providers, executives said.

Some of HP's larger partners were "inappropriately" using the funds to improve their own profitability rather than for financing deals, said Kevin Gilroy, senior vice president of worldwide SMB Segment Operations at HP. "We want to use the monies for what they were originally intended, which is to extend them to partners with great skill sets that need HP to help them," he said.

HP would not identify which solution providers would lose the extra financing, but channel sources said the changes are aimed at CDW, Insight Enterprises and PC Connection. Under the new strategy, the number of solution providers receiving financing under HP's new Partner Capitalization program rolling out Aug. 1 could multiply to 4,000 partners from 400, according to HP.

"Hallelujah! For traditional resellers buying through distribution, this is huge," said Steve Harper, president of Network Management Group, a Hutchinson, Kan.-based solution provider. "If they're giving resellers extended terms, it helps level the playing field."

Matt Troka, vice president of purchasing at Vernon Hills, Ill.-based CDW, said the change will have minimal impact on his company because the new program only affects products purchased through distribution, not directly from HP. "We buy an enormous amount directly. This changes only a small percentage of our business," he said.

Executives at Insight and PC Connection could not be reached for comment.

HP's previous financing programs derailed its attempts to penetrate the SMB market because large solution providers like CDW used the extended terms to sell far below the prices set by smaller solution providers, said one distribution executive, who asked not to be named. As a result, small solution providers were not motivated to grow their HP business, he said.

"The range between our highest price to resellers and our lowest price is not 12 points. We're not charging 17 points to some guys and 2 points to others," the executive said. "But when you start talking about vendor promotions and [capitalization] subsidizations, you can see why resellers could lose bids to CDW by 10 points."

The move will help HP drive business with value-added SMB solution providers, executives said. "It's a little more work on our end, but overall it allows us to be more flexible and offer some more creative financing tools," said Paul Bay, vice president of vendor management at Ingram Micro.

"This is a core competency of distributors. We're supportive of HP focusing on the SMB space," said John Paget, North America president and COO of Synnex, Fremont, Calif.

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