A LACK of supplier management and credit checking is an often unreported topic that has been causing some SMEs to fold.

The recession has highlighted the vulnerability of certain markets including IT service and support, which many SMEs have paid for upfront.

The failure of a number of IT support companies in this recession-hit sector has had a massive knock-on impact on their client base.

As they cease trading, they take with them the large sums of money they have received upfront, leaving SMEs in a precarious financial position, without IT support and without the cash flow available to fund another service.

This combination is damaging some SMEs beyond return, compromising how they serve their customers – and in worst case scenarios, putting people out of business.

So how can SMEs in the region safeguard their choice of IT support and ensure they have the right supplier to aid them through the recession?

Firstly, SMEs looking to bring in a new IT support provider should credit check them to find out their current financial stability.

SMEs should question whether potential suppliers who ask them to enter a long-term money upfront contract are doing so to counter their own struggling performance indicators. At SMEs’ disposal are useful companies such as Dun & Bradstreet who can help qualify whether a prospective supplier is a high risk investment, and whether they will indeed be in business tomorrow.

There may be an initial outlay to source this information but this pales into insignificance compared to the potential cost of a supplier going bump in the night.

SMEs should not enter into contractual agreements for more than 12 months. The days of three-year contracts and substantial funds paid upfront are numbered, especially with the recession tightening purse strings.

For any SME signing a long-term supplier agreement the risk factor increases tenfold, so contractual flexibility should be at the forefront of any SME’s mind – if a supplier is not meeting its obligations then SMEs have a route out.

This also gives businesses relative peace of mind on their initial expenditure as they have saved themselves from overspending on a potentially absent service. Good IT service and support providers should be able to facilitate quarterly or even monthly payments to ease cash-flow dilemmas for SMEs in the current climate.

Remember the importance of credit checking your supplier – as they will no doubt be credit checking you.