The credit crunch has been with us for a while now, and the lack
of easy credit is starting to bite. Why is this relevant to TMT
News? And how might this affect you as an acquirer of technology
services?
It is well known that many technology companies have 'thin'
balance sheets and are not known for the depth of their financial
resources. Because of this, many suppliers in the industry will
find it increasingly difficult to obtain access to working capital,
and this will lead to the demise of some services and software
companies.
So what can you do about it? The key is to take a more proactive
approach during this period of economic uncertainty. Set out below
is a checklist you may consider applying to your technology
supplier:
- Are all your suppliers cashed-up, big multi-nationals, or do
you have some smaller providers?
- How many of these vulnerable suppliers provide business
critical software or services to you?
- Are any of these providers asking for money upfront, payments
in advance, or in some other way showing evidence of financial
strain?
- Do any of these suppliers have a customer base that is
principally in an area severely affected by the credit
crunch?
- Do you have a 'plan B' for each of your key
providers?
- Have you checked your escrow arrangements lately? If there is
no 'plan B' supplier of software that you can readily
transfer to, you will need access to the source code if the worst
happens. Consider whether you need to verify any assertion that the
most up-to-date source code is deposited with the escrow
agent.
- Are the escrow arrangements with a well known (cashed up)
escrow agent?
- Is the escrow agent here or overseas?
- Have you pre-paid for a service or software that you may not
get?
- Has the impact of the credit crunch on your suppliers appeared
in your risk register, and if so, how often is this reviewed?
Overall, this is a good time for a risk health check. We all tend to focus on the impact that the credit crunch has had on our business, but may have overlooked the impact of this economic uncertainty on our software or service providers. Remember it is quite likely that they are more vulnerable than you are, so it would be prudent to carry out your risk review as soon as possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.