As funding grants dry up during challenging economic times, hardware distributors need to re-evaluate the risks involved in granting credit to resellers, especially in sub-Saharan Africa.
This is the view of Jaco Roux, sales manager for Africa at Tarsus Technologies, who argues the global recession has meant many sub-Saharan African countries have seen serious withdrawals of cover from credit guarantors.
“Previously, distributors extended credit facilities to resellers on an individual basis, which made it possible for them to do business with large corporations and government entities that have 30-to 60-day billing cycles,” he explains.
However, in the current economic climate, resellers need to be wary of risky credit offerings. He says resellers need to be aware of the risk that accompanies doing business with a distributor willing to give unsecured credit. “It might seem worthwhile, but bear in mind that in Africa, there is no legal recourse against a corporation that owes money, except to liquidate that corporation.
“With credit becoming more difficult to obtain and expensive to finance, and with it becoming less viable to do business simply on a handshake, there is a definite need for reliable credit-vetting agencies to become involved in the African marketplace,” suggests Roux. He adds that credit should not to be the first call as a payment method, but rather an available alternative.
Roux argues that while it is possible to address the issue by implementing strict use of credit-vetting agencies, it would be easier to address the root of the issue. “Realistically speaking, the availability of credit might worsen and resellers need to educate their customers on the costs involved in obtaining credit, and the risks involved for them throughout the duration of the transaction,” he says.
“Instead of having a credit arrangement with a few distributors for nominal amounts, there is the option of requesting that the credit a reseller has with a number of distributors be collated. In this way, it can be better served at one distributor, creating more beneficial fiscal security,” says Roux.
“Customers need to validate and analyse their deals more closely and intelligently and need to be wary of making sales for the case of an immediate turnover,” he explains.
“This requires them to be cognisant of the long-term risk and keep in mind the eventual margin. Our message to the market is to rethink their cash flow, ensure their costing model is correct, and attempt to change perceptions of how credit-worthiness works,” concludes Roux.
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