When credit is tight, “rent-to-own” programs begin to proliferate, offering consumers everything from furniture to cars for a nominal monthly fee. Start-ups are also having a tough time securing credit, as both banks and potential vendors weigh the risk of backing fledgling businesses.
In the UK, British Telecom (BT) is launching a type of rent-to-own program in communications services. BT Business is allowing small businesses to lease both hardware and telecommunication services, according to a press release. The options include telephone systems, mobile systems, software, and IT equipment. The program is scalable, and companies can add services or hardware as they grow.
The UK has an average of 270,000 start-up businesses every year, according to BT. “In light of the current economic climate, we want to help these businesses access the products and services they need to get their new venture up and running,” Declan McGlone, general manager of BT Finance, said in the press release. “Our 'KickStart Scheme' offers finance over a fixed term, at a fixed rate, making it easier for customers to budget.”
I think this is a pretty neat idea. I know that equipment leasing has been an option in the electronics supply chain, particularly for manufacturing and test equipment. I'm not sure if those services are widely used, though.
The issue of credit in the supply chain ebbs and flows depending on the economy. One of the biggest sources of credit in the electronics channel is distribution. Since the channel is the first stop for many design and engineering companies, distributors have been extending credit pretty much since their inception. As both the industry and individual companies have grown, the amount of credit extended by the channel has increased considerably. Additionally, suppliers don't really want to deal with tracking payments from smaller accounts, and they have been happy to let their distributors handle that work.
Distributors don't make a cent on these services — they don't charge interest on credit that extends beyond 30, 60, or 90 days. This is a double-edged sword for the channel. Providing credit may secure them an account they normally wouldn't have, but if the account defaults, the distributor is out of luck. Distributors conduct extensive credit checks on potential customers. During the last recession, companies actually added staff in their credit facilities while laying off sales and support staff.
It looks like the industry is on the verge of another tough period. I don't think we'll see a lot of companies going out of business. I think the first recession already culled the weakest companies from the pack. But companies might want to look at more creative ways of doing business with small businesses and start-ups. Is rent-to-own an option for your business?