Things you should consider when it comes to NCE Contracts and Credit

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What do the upcoming NCE changes mean when it comes to commercial contracts and credit?

As you would have seen there are some big changes coming to Microsoft CSP and while we are giving your sales teams training on how to position this and understand the operational side, it is equally important to ensure the legal and credit side is also addressed and ready for these changes.

The three main changes that you need to take into account for NCE are:

Commitment periods
Previously there was only the option of annual commit but without any imposed restrictions on cancellation and flexibility. Under NCE we have two types of commitment period with annual and monthly commitments, both have restrictions which we will cover below. There is a price advance to the annual commitment and a premium price on the monthly commitment.

Cancellation Policy
With NCE you only have a 72 hour window to cancel your NCE order. This is a total of 72 hours from your end user informing you to Tech Data actually making this cancellation in the system. After this 72 hours you are tied into the contract for either the monthly or annual commitment based on which option you have ordered. There are no expectations currently to this 72 hour window and no refunds will be offered after 72 hours

Amendment Restrictions
Under Legacy we have been used to increasing and decreasing seats when needed. Under NCE this flexibility is not the same:
–  Annual commitment: you can only make amendments to decrease the seat count within the first 72 hours after the order has been processed. After this point you are unable to decrease or remove licenses until the annual renewal. You can add new licenses and increase seat count through the agreement, just no decreases. You will have the ability to schedule changes for renewal to ensure you maximise that new 72 hour window on renewal
– Monthly commitment: again you only have the first 72 hours to make amendments and decrease the seat count, but as this is a monthly commitment you only have to wait until the monthly renewal to make those changes and have those reflected in your billing. Unlike the annual as your commitment is only monthly you are only contracted for those products and quantities for 1 month at a time and can change these for the monthly renewal. This flexibility is charged at a premium price point.

Taking these three things into account you need to ensure your terms and conditions to your end users reflect these updated cancellation policy, commitment periods and amendment restrictions.

We have discussed on our webinars and roundtables that these new restrictions do increase a risk when it comes to the credit side of things due to being unable to cancel the agreement for both you as our the Indirect Reseller but also Tech Data as the Indirect Provider to Microsoft. We tell you this not to be negative about NCE but to make sure you are informed and can adjust your processes accordingly to protect yourselves as much as possible.

A few things that Tech Data and Microsoft suggest are:
  • Ensure you are credit checking your end users – Tech Data will be increasing the credit checks we do on our partners for this same reason. As you know we don’t credit check end users as our relationship with you our partners. There are dozens of examples of companies you can use for these including Graydon, Bureau Van Dyke, Dunn & Bradstreet, Credit Safe etc. They will have different cost associated to using that service based on how many checks and contract you sign into.
  • If the end user is able to pay for the service upfront then take this option.
  • If you are unsure on an end users credit we recommend the monthly commitment subscriptions as though these are more expensive you are minimising any risk to 1 month at a time.
  • Look into our CSP Tech-as-a-Service offering below to outsource those payments to a credit broker for a fee.

Introducing CSP Tech-as-a-Service (TaaS) Offering

Previously with CSP Legacy it was not a valid option to consider TaaS due to the monthly billing, flexibility and inconsistent commitment terms as it could be cancelled at any time. Now with CSP NCE we are looking at annual commitments that mean that the baseline of the subscription would not be decreasing and with the changes to cancellation and term it means that suddenly TaaS finally has its place in these discussions.

To be clear if you need the flexibility and are looking at the monthly/monthly subscriptions this is not going to help you, though you are only committing for one month at a time and only need to wait one month for the cancellation and billing to stop. This pricing will be at a premium for this flexibility and works out approx. 20% increase on what we know CSP Legacy to be today, though watch out for those 6 M365/O365 products that’s increasing 1st March 2022.

When it comes to the current annual commitments and coming soon we will see potentially three year agreement terms added as well, we might want to look into how we protect ourselves with that extra credit risk as the agreement cannot be cancelled for the full term.

How can Tech Data’s TaaS help?

As you will know Tech-as-a-Service is a method to outsource the credit side of your products you are selling your end users. You will be paid upfront by the creditor for the annual/annual commitment subscription and you can then pay Tech Data that same way. Your end user will then have a choice of monthly or quarterly payments back to the creditor, this means all the risk is moved from you to them to collect.

At Tech Data we make this process easier with an online portal within our Intouch Platform that you can enter and control yourself to help make this as low touch as possible. Subject to approval the typically interest cost we are looking on the annual commitment deals are approx. 10%.

We are looking at this from a credit risk perspective that you might move your end users onto monthly/monthly subscription terms to give you the ability to cancel with only one months’ notice instead of the full year with the annual commitment that puts you more at risk if they went bust or stopped paying.

This new monthly/monthly term comes at a premium price which is 20% more than we are used to today on CSP legacy. But what if we take TaaS instead and remove that credit risk means you can offer the end user a lower price as it is only 10% APR instead of the price premium of 20% for the monthly/monthly term offer.

The benefit of this using TaaS is mitigating the credit risk but you will lose the flexibility offered by the monthly/monthly term offer. Under TaaS we would process an annual/annual commitment term which will mean it cannot be cancelled or licenses reduced after 72 hours.

Let’s see an example - If your annual/annual commitment subscriptions comes to £10k:
  • You process TaaS and you will be paid £10k from the creditor upfront in one lump sum. As this is an annual/annual order so you will also benefit from the Microsoft incentives of that annual order, which remember on NCE is an extra 1% compared to legacy
  • You would then pay Tech Data upfront for this order
  • End user will get a choice to pay back the creditor directly either monthly or quarterly, so for example, with the £10k example they would be looking at £920 a month or £2,723 a quarter.
After April 2022 we are looking to introduce a services element to this which would allow you to also add your managed services to TaaS as long as it is less than 50% of the license cost in total.

Summary on TaaS

  • TaaS is an option to off-set the credit risk for NCE
  • Only annual/annual subscription terms can be processed through TaaS which will mean that you and the end user can only cancel or amend the quantity of licenses down within the first 72 hours only, after this point you can only add to the agreement not remove or cancel until the end of the annual commitment.
  • You as the partner will be paid the annual cost upfront from the creditor and will pay Tech Data upfront as well – no credit risk for us both.
  • Your end user will pay the creditor back directly, the interest rate of 10% will be added to their monthly or quarterly payments.