Overview
Although the US economy has mostly recovered from the pandemic, the increase in demand has put a strain on the supply chain and sped up inflation. So far this year, the Federal Reserve (the Fed) has raised rates five times and is likely to raise rates one more time before yearend. This economy has been hard on consumers but equally hard on businesses. Although this downturn hasn’t been as bad as 2008, when times get challenging, customers look to shore up their balance sheet and strengthen their financials.
With all the volatility in the market, how do companies continue to invest in projects that help them innovate and win more market share, while limiting their risk to prepare for another potential recession?
The Answer
Leasing and financing. With the emergence of more flexible payment options and simplified contracts terms, customers can easily position financing to their end customers and take advantage of the benefits it offers. In terms of rates, captive finance companies offer fixed rates rather than variable rates, often found at banks and traditional finance institutions. Customers can lock in lower rates now that will extend over the desired term (12–60 months). This is useful for guarding against future interest rate hikes.
Customers who want to take advantage of multi-year discounts offered by vendors can do so without the large cash outlay. If wrapping financing into the solution, they can pay overtime as the solution generates profits. Furthermore, market trends are pointing towards pay-as-you-go finance models that give businesses the opportunity to buy technology but pay for it over time, similar to a subscription model but with more flexibility at the end of the term.
Credit capacity should also be a consideration. In most cases, on a financed transaction, credit is evaluated on the end user so it’s completely incremental to the partners line of credit. This is especially important for partners on an accelerated growth path because it ensures they have the credit capacity needed to support that growth. In addition, the finance company assumes all risk for the funded transaction, which protects the partner from bad debt charges.
Let’s hear from our CFO on the current market conditions. David Jordan is the Chief Financial Officer of the Americas at TD SYNNEX. In his role, he is responsible for overseeing all financial aspects of the Americas business.
What are your thoughts on inflation and rising rates? What can partners and end users do to prepare for more increases?
“We have started to feel the impact of both inflation and rising rates. From a reseller perspective, capital markets are becoming tighter and more expensive. Our working hypothesis is the peak to trough will be 12–18 months and would expect the Fed to increase interest rates in both September and November. I have encouraged resellers to review their existing liquidity, implement more rigor around collections and working capital management, and also leverage TD SYNNEX Capital wherever possible. From a credit and financing perspective, we are committing more capital toward our financing business and will push the limits of flexibility to ensure we continue to enable success in the channel.”
For more information on the market and how to best advise your customers, contact TD SYNNEX Capital at financingteam@tdsynnex.com or 800–307–4588.
