By Cassimir Medford

Cisco Systems said Monday that it has enhanced its financial capacity and flexibility in much of the developing world to the tune of $2 billion so it can better navigate the financial hurdles faced by its channel partners, which are frequently small and medium-sized businesses.

Citibank, GE Capital Solutions, and Standard Chartered Bank will provide $2 billion in short-term inventory financing on an annual basis to Cisco’s partners in the Middle East, Africa, Latin America, Russia, the Commonwealth of Independent States, and Central and Eastern Europe.

Eastern Europe

Cisco has similar arrangements in the United States and Western Europe, but the San Jose, California-based networking equipment giant has been extending both its portfolio of products and its reach further into the developing world.

Western Europe

The scarcity of working capital for distributors and others who install and support Cisco equipment in developing countries can be a major problem for Cisco, which does business in 30-day cycles.

“Before this program we were telling people they had to pay us in 30 days, but frequently it took 30 days just to get the equipment through customs and duties,” said David Rogan, president of Cisco Systems Capital.

“This program gives them the credit capacity to buy Cisco gear, and the payment terms will be extended from 30 days to 60 or 90 days,” he said. “That gives them the ability to take on much larger deals than they were able to in the past.”

Shares of Cisco rose $0.21 to $27.19 in recent trading.

Payment Cycle

In many developing countries, the larger deals are frequently with the government, and the pace of the resulting sales cycles and payment cycles in developing countries can be glacial in terms of the speed in which either is accomplished.

Cisco’s banking partners are taking much of the risk involved in getting the eventual payment. The banking partners pay Cisco within its 30-day term and then the channel partner is indebted to the bank according to the terms upon which the two have agreed.

“It’s a very leveraged model for us from a banking model perspective because we are not putting in $2 billion worth of risk capital,” Mr. Rogan said.

Cisco currently has access to almost $10 billion in third-party inventory financing, but much of that is used in developed markets such as the U.S., Western Europe, and Japan.

JapanCisco Capital began extending short-term capital to developing countries in 2005. The financial unit currently extends third-party credit in Canada, Mexico, Central America, and the Caribbean.