High and Dry?

Neil Moulton3

Neil Moulton, owner of independent channel consultancy Chaucer Channel Services, comments on the sometimes precarious relationship between lease providers and resellers. 

As a lad growing up in a Kentish village I was fascinated by nature. It struck me that life often dangled by a very thin thread and that most species were more or less dependent on another for their continued existence. This symbiosis is taken for granted in the natural world but it’s surprising how it often appears in business – companies operating parallel business streams with no common control mechanism.

Take leasing for example, and the potential for frustration suffered by many resellers in articulating to funders the basis of a deal (usually after the customer has signed up). I should by the way state from the outset that I have a vested interest in the leasing business, working as a consultant for Clear Asset Finance, a successful Essex-based brokerage, however park that for a moment if you will.

Most savvy resellers will be familiar with the profile of businesses in their area of operation. According to Government statistics for 2012, there were 4.8m UK businesses, 99% of which employed fewer than 250 people (4.6m employed fewer than 10 staff) – these companies have always represented the market life-blood for the 2500 or so voice resellers operating today.

It’s not a particularly glamorous business at the ‘lower’ end of the market; micro businesses’ (sub 10 employees) contribution to UK GDP (£624bn or 20%) means their individual turnover is about £135k on average. As you’d expect, they don’t have large budgets for technology, so for the VAR it’s all about generating a high volume of modest value contracts, with good service at the core of the proposition to ensure ongoing recurring revenues.

Anyone who knows our industry will be aware that’s why finance has played such an important role for these businesses – leasing provides a simple way of articulating a technology proposition in terms that are more likely to be palatable to the business owner. It’s no surprise to me that the companies that ‘get’ leasing have weathered the economic storm far better than those looking for capital budgets.

So far so bleeding obvious I hear you cry – except we now need to come back to the sometimes uneasy relationship between the VAR channel and lease providers – the simple fact is that VARs need the finance houses more than the finance houses need the businesses from the voice and data channel. Apart from a few specialist brokers that exist exclusively to serve the channel, finance providers have multiple business streams and can to a certain extent pick and choose their markets and partners.

In my time at Siemens, I saw a large national reseller very nearly go under when a prime-funder policy decision changed at short notice; in those days we were able to offer extended credit terms as a life-raft while contracts were placed elsewhere but it’s unlikely that would be possible in today’s chillier climes. Take the current situation with education leasing. As quoted by the Finance & Leasing association guidelines (Dec 2011); “An Operating Lease is the only type of lease a school should enter into. These leases involve the school paying a rental fee for the hire of an asset for a period of time, and are similar to a rental agreement. No other types of lease, such as a Finance Lease or hire purchase, may be entered in to by the school as this is a form of borrowing.” The problem here is that for years, schools have been offered finance products that don’t meet these criteria. Specialists in this field will be all too aware that many prime funders have recently withdrawn products to schools and academies, leaving resellers and end-users frustrated. Is it a coincidence that these markets have been dropped shortly after the BBC reported mis-selling of ICT equipment to schools by a handful of ne’er-do well resellers (and the Operating Lease providers writing off millions in bad debt as a consequence)? Just because you’re paranoid it doesn’t mean they’re not out to get you, so I think there is a link. The situation’s not helped by the fact that schools (possibly acting on advice) have relied on the fact they have been mis-sold finance products to rescind leases, pleading “buyer remorse”. Prime Funder caution and a (possibly understandable) mistrust of how the market is served by the vast majority of ethical ICT resellers have caused a potential major problem in a market that’s already suffering from a lack of momentum. With PBX system sales down quarter on quarter for the past 12 months according to MZA, resellers need every sales opportunity they can get their hands on, so the timing couldn’t be worse.

So what’s the answer to this dilemma? Fortunately brokerage relationships can provide the reseller with a greater degree of flexibility – while brokers are still constrained by (seemingly) arbitrary prime-funder decisions, they also have the option to source alternative funder streams and articulate the ethical nature of their partners’ business on a case specific basis. Additionally there’s also the potential for “own book” transactions where appropriate.

Clear Asset Finance, whom I mentioned earlier, have managed to break this deadlock and are able to offer education operating lease products for selected partners. CAF like most good brokers, gain an in-depth understanding of how their customers operate and can articulate this to the prime funder, thereby helping to remove the default position of distrust that pervades this market. They also offer a lease training scheme “Selling Value With rentals” which helps resellers get the process right first time and close more business.

So, do brokers provide a universal panacea? Probably not –they still have to keep their prime funders happy and it’s healthy that they scrutinise business to weed out problems. The vast majority of finance proposals are clean but reputations can be damaged with one ill-advised deal from a rogue salesperson so there should be a balance between service provision and commercial due diligence. What brokers like CAF do provide are options to re-introduce an informed view of the market in which we operate.

So to complete the analogy we’re never going to avoid the fact that there are parallel and dependent relationships in the voice and data channel. In telecoms, as in nature, it’s likely that if you rely on someone else for your lunch, you run the risk of going hungry from time to time (or worse), so keep your friends close and your finance sources closer!

 

 

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