Dell is being more aggressive in extending financing to its SMB customers, according to an article in the Wall Street Journal.
Although I recognize the risks inherent in providing relatively generous credit terms to SMBs, many of which have suffered inordinately during the savage economic downturn and the current joyless recovery, Dell is doing the right thing, for itself and for the economy.
As the money spigots are turned tightly off by banks and other traditional sources of credit, Dell and other vendors that depend on the ongoing patronage of SMBs confront a difficult dilemma: refuse to provide vendor financing to these customers, and see them perish or go to other vendors willing to extend financial largesse; or provide them with the financing they need to buy your products and services, incurring the risk that some of them will fail anyway and not repay your loans.
The second option is better, particularly if Dell is selective in how and to whom it provides its vendor financing. In that regard, Dell, which derives about 23 percent of its revenue from SMBs (companies with fewer than 500 employees), is taking a conservative, prudent approach in assessing the credit risks of its clientele.
That’s good practice, of course. But it’s also good practice for Dell to reach out and help those customers who can be helped, and who will continue buying Dell PCs, servers, and services when times improve. The concept of enlightened self-interest in business often is viewed cynically, and there’s no question that it features a hard edge of commercial realpolitik. It can work, though, delivering benefits for all involved, and this is one example where it definitely serves more than one party’s interests.
Dell has $7 billion in credit available for small companies, and it extends most of the credit itself rather than through financial intermediaries. Good for Dell, and good for the companies and organizations that qualify for the financing.