The recent decision taken by Tait to bring the credit period down to zero days is revolutionary. Credit has always been a double-edged sword for channel partners. Doing business on cash terms limits business opportunities, but offering credit exposes the partner to the risk of non-payments. Tait’s decision to stop selling on credit was prompted by one such risk – the recent Lamington Road based scam involving bounced cheques worth close to Rs 40 lakh.
While Tait’s members might have a point in taking such stringent measures to ensure that such scams do not become the norm, it needs to be remembered that not all credit is bad. Urging its members to stop selling goods on credit is a good intention that unfortunately translates into bad business. Credit when calculated practically benefits both the giver and the receiver. It brings flexibility to the business and ensures a wider product portfolio. However, when used recklessly it can close down the business.
The IT trading industry, because of its lack of entry-barriers and easy credit offerings, has had its share of scams, probably more than any other trading community. Yet, partners seem reluctant to heed the warnings. At every level of the distribution chain there is a resistance to impose credit limits. The race to earn more has resulted in the channel taking needless risk. And when things go wrong, partners look at associations to provide the solution.
The solution actually lies with the partner. They have to start evolving their individual credit-evaluation systems. Just as we teach our children not to spend more than we earn. The channel should also consciously take a decision not to lend more than it can afford. Though this might bring down the earnings, it’s still better to have assured profits than make no money at all.
Partners have to become willing to bear the onus of their decisions, whether in profitability or in debt.