Harshavardhan Kathaley, Director, Partner Sales, India & Saarc, Juniper, got into a candid and brief interaction with Amit Singh to offer suggestions and best practices around effective financial management for channel partners.
What are the factors affecting the financial stability of the IT channel partner organizations in India?
On the macro side, the challenges revolve around longer payment cycles for turnkey projects for government transactions, and increasingly so among corporate organizations.
On the micro side, channel partner organizations may sometimes have inadequate working capital investment. Also, many of these channel partners have technical skill-sets but have not been able to employ good finance professionals who can understand and effectively manage their financial requirements.
What are the best practices you suggest for effective financial management for channel partners?
Some of the best practices that can be employed are:
- Employ key finance professionals and not just accountants which many small/mid-size partner organizations end up doing.
- Perform a budgetary planning exercise at the beginning of the year to understand the working capital gap.
- Work on various options like capital infusion, short-term loans, bank financing, etc. to plug these working capital gaps.
- Seek LC (letter of credit) limits from banks that will help fund the deals requiring longer payment terms.
- Negotiate better terms with the customers – try to get 80 percent on the delivery of the product itself rather than linking entire deal payment to installation and implementation.
- Seek channel-financing options available with the distributors.
How does vendor financing score over other financing options?
Since the financing arm of the vendors is aware of the transaction in question as well as the channel partner, it can take faster decisions. Moreover, it can offer better interest rates and in many cases subsidized by the business arm of the vendor.
On the flip side, these financing arms of vendors are usually risk-averse and seek to finance smaller partners only with collaterals like bank guarantees.