Microsoft plans billing change, OEM distributors must pay in advance

Microsoft plans billing change, OEM distributors must pay in advance

Motivated by a desire to minimise under-reporting of software sales, Microsoft is set to launch a new billing system for its OEM distribution partners.

While the software giant played down any impact the move would have, it has the potential to shake up the way many of its 280 worldwide OEM partners do business. In Australia, it applies to Ingram Micro and Synnex.

Currently, OEM distributors are only required to pay for stock once it has been sold on to systems builders but, under the new system, they must pay up-front for all software products.

Microsoft partner group director, Kerstin Baxter, said there had been no under-reporting issues locally but the new system would still be rolled out around the turn of the year.

"All of our distributor agreements are global contracts so we have to make sure we have the same set of terms and conditions in each country," she explained. "Parallel importation laws also mean product can come in from international organisations, so again, the rules need to apply everywhere."

Microsoft was currently assessing possible changes to credit limits and terms in light of the new billing system, Baxter said, but she insisted it would not be a major issue.

"Paying upfront will be similar to what distributors do for any other vendor's product," she said. "So the impact for them is just around managing their inventory and aligning to industry-standard practices."

However, Synnex managing director, Frank Sheu, said cash flow issues could be a major concern under the projected change.

"Our orders with Microsoft are a couple of million dollars a month, so our cash flow requirements will be ten times greater," he said. "We are also very conscious of having to hold high-value stock like servers and enterprise software."

To date, Synnex had not been given clear directions on how Microsoft would compensate or minimise the cash flow impacts. But Sheu could see some possible benefits from the change.

"If the barriers to entry into OEM distribution are so high, hopefully margins will improve," he said. "If you don't have deep pockets you won't be able to stay in this business."

Nobody at Ingram Micro was available for comment at the time of going to press.

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