ChannelBIZ: 10 Financing Tips for the Current Economy 1 July, 2010 By Wayne Peters, Arrow ECS

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History shows that the majority of small businesses do not fail during a recession -- they fail in the 12-18 months following the recession, primarily due to cash flow concerns. Following are some tips for structuring deals, using financing to close deals and negotiating quotes and contracts to help you win in the current economy.

1. Manage cash flow to maximize available funds. Managing cash flow is very important for resellers right now, as doing so will keep their business in the black despite slow periods and position them for growth when the market turns. As financing for purchases accelerates accounts receivable payments (in some cases as much as 15-25 days), even small attach-rate increases would free up significant cash flow to pay bills and make investments in the business.

2. Give customers managed-expense options. Before the downturn, there may have been more interest in owning assets as opposed to managing expenses. Today companies are more interested in having predictable expenses that they can forecast. The trend is moving toward operating expenses rather than capital expenses.

This is no different from the trend that is taking place across the channel toward virtualized technology such as managed services and cloud computing. The benefit of this technology is that it allows businesses to move more with less. This is the same benefit that managed expenses provide. Operating leases, for instance, provide a pay-as-you-go plan that can be easily managed as environments, technology and financial positions adjust to market conditions.

3. Help customers bridge the gap until reimbursement funds are available. The government is reimbursing companies to upgrade in areas such as electronic health records or green initiatives as a result of the American Recovery and Reinvestment Act. This is good for purchasing but the financial incentive for these projects may not be fully realized until tax time. Resellers can accelerate these sales by integrating finance options such as operating leases in their sales proposals. This allows the customer to make nominal, or even delay payments, until these financial incentives can be realized while still providing for the option of ownership at the end of the contract term. This concept can apply to any new technology or focus area.

4. Present financing that matches the solution and market. Know the customer's financial position and propose financial solutions that address their needs in terms of cost of capital, return on investment and accounting methods utilized, among others. The more customized the financial offering is to the technology solution, the better the chances that the customer will make the investment.

5. Build in some form of a return-on-investment or total-cost-of-ownership model into sales proposal tools. Many resellers engage financing in the quote-forecast and -close stages. They would be more successful if they integrated financing into the propose stage. This allows the seller to present the metrics and costs of making the purchase along with the profitability potential. Equally important, the proposal also includes options for financing the solution. Oftentimes, financing discussions take place at the end of the sales cycle, but the right financing can be the difference between a customer even considering the technology and one that isn't interested.

6. Take advantage of tools that allow you to automatically create a finance-planning quote with each sales quote. Arrow ECS offers this type of tool to our resellers for every sales quote over $10,000. The system generates a dynamic finance-planning quote that matches the sales quote and allows the reseller to adjust their pricing before presenting it to the customer.

7. Following up on the previous tip, align with a distributor that provides a wide selection of creative financing solutions to put you in the best position to achieve your sales plans while meeting the needs of your customers. Large, international distributors like Arrow ECS have the strength and stability that resellers can draw from. The most successful resellers develop a purchasing plan with their distributor that allows for a smooth flow of their orders based upon customer purchasing habits, credit strength and their own financial growth. The right financial solutions can solidify the sales process as well as improve your financial strength. An effective financial solutions plan can eliminate end-of-cycle fire drills and ensure that your open terms credit line is available when needed.

Also, distributors can help resellers manage their financing so they can focus on being a selling machine. Those like Arrow ECS that integrate their leasing services representatives into their sales organization and have financing experts in close geographic proximity to resellers and their customers can provide personalized support to best meet their needs. They can manage resellers' portfolio data and provide periodic reports showing when their customers' lease deals end, thereby helping resellers generate more leads. Many resellers rely on Arrow ECS to assist them in calling on customers and helping them negotiate leasing renewals. Our focus is on helping resellers utilize financing as a mechanism to close more sales.

In addition, distributors can manage the quoting and contracts process for resellers, saving them hours of work effort. Some distributors also will provide training and educational sessions to help maximize cash flow and identify effective financial solutions for resellers and their customers. Arrow ECS provides various financial selling training sessions that range from conference calls, to webinars, to onsite working sessions with sales teams. The classes range from 30-minute sessions to half-day workshops.

8. Consider leases first before looking at other financing options. Resellers often first approach their bank for a loan when they need access to capital, but banks typically require covenants for their loans related to cash flow and debt-to-asset ratios. Leases do not typically place covenant requirements on the reseller, and they offer quicker access to funds. In addition, resellers do not typically incur costs related to leases whereas loans come with interest charges.

9. Be a smart shopper and look for financial solutions that deliver the best value for you and your customers. Captive financing programs generally offer the best rates and participate in brand buy-downs. Private-label programs are another option when captive programs aren't available or don't work for a specific deal. Look for programs that match financing to the solution. Also, work with the financing company to negotiate variations of programs to best meet your needs. Again, distributors can be particularly helpful with assisting in those negotiations. It is always better to align your financing solutions with the channel you are operating in. Controlling your portfolio data is key to producing next-generation sales.

10. Learn to manage the deal margins with financing. The right financing structure can create a competitive edge as well as ensure profitability of the deal. The most successful resellers generally integrate financing into their process. Deliver "true" financing solutions to your customers. Build trust with your customers by offering financing that has no hidden costs or fine-print loopholes. We all know that nothing is ever truly free, but if structured appropriately, you can deliver competitive financing that will "take the deal off the street" and still allow for appropriate margins.

These tips would be applicable in any economy but are particularly important in the current market. Cash flow is crucial to not only getting through difficult times but also getting back to being healthy and profitable. Employing the right solutions at the right time will allow you to improve and maintain your financial strength and close more deals.

Wayne Peters is director of leasing services for Arrow Enterprise Computing Solutions, a business segment of Arrow Electronics Inc. Peters can be reached at 303-824-3702 or wpeters@arrow.com.