Management of cash flow is one of the greatest obstacles a small business owner has to overcome in order to be successful, which makes the planned launch of a credit card designed specifically for the Australian IT channel an intriguing prospect.
Taken at face value, the scheme will surely be welcomed by resellers, distributors and vendors alike. After all, the straightforward theory is that resellers will have greater access to more products from more suppliers, distributors get paid on time without having to worry about bad debt and vendors win too because more product is being ordered.
The project has its plus points. Firstly, it is the brainchild of a channel veteran who spent a decade working in distribution and brings knowledge of the industry’s quirks and nuances to the table. Only time will tell if this can be converted into tangible benefits that differentiate DealerCard from other pieces of plastic that resellers carry around in their wallets. Another bonus is that, again in theory, it will enable smaller resellers to operate with a greater degree of flexibility. Credit is usually reserved for trusted partners that have developed longstanding business relationships with their wholesalers.
If all goes to plan and DealerCard is widely accepted, distributors will be more receptive to credit because they are offloading responsibility for the debt. Anything that makes channel operations more fluid would seem likely to have a positive impact on spending.
Despite the need for differentiation, there are some features of traditional credit cards that Moneytech would do well to retain. One of these is air miles. Several resellers ARN spoke to about DealerCard noted that this was a key benefit of using credit cards — despite the need to spend a small fortune in order to fly any further than the Gold Coast.
And then there are other features of credit arrangements that are less appealing. Interest rates would obviously top this list. DealerCard will offer resellers a 30-day interest free period before its 17.5 per cent charge kicks in.
While this means payments received 60 days after purchase will incur an average rate of 8.75 per cent, which is more than reasonable for unsecured credit, it remains to be seen how many resellers are prepared to adopt a method of payment that further eats into already strangled profit margins.
This is where Catch-22 could well come into play. While the card is first and foremost a business venture designed to make money, it is aimed squarely at the little guys struggling to secure other forms of credit. But a great proportion of these smaller resellers have built their business models around cash transactions because they can secure better pricing and don’t have to share their margins with a third party. Where they do have credit agreements, it is often at a competitive rate with a business partner they have dealt with for many years. This system is going to be very difficult to break down.
Moneytech is only too aware that it needs the support of a heavyweight distributor to lend credibility to its DealerCard scheme. While broadly supporting the plans, Tech Pacific managing director, Kerry Baillie, said the devil would be in the detail. It will be interesting to see which of the major distributors is prepared to step up to the plate. What do you think?
Brian Corrigan is Editor of ARN. Reach him at firstname.lastname@example.org