IT chiefs must prepare as supplier insolvencies rise

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IT chiefs must prepare as supplier insolvencies rise

Andy Favell
Industry experts have warned that IT directors should prepare for the possibility that the reseller or system integrator they rely on might not be there in six months.

Insolvencies among suppliers of computer hardware, software and support are on the increase, according to market watchers.

"There is room for concern," said Alan Norton, head of intelligence at Graydon UK, a credit reference agency that specialises in computer suppliers. "There has been a noticeable acceleration in the number of insolvencies [of resellers and system integrators] since the third quarter of last year. It will get worse before it gets better."

Graydon monitors 39,000 companies registered at Companies House involved in the supply of computer equipment. The majority of these firms are "dealers" - companies whose business is the reselling, integration and maintenance of computer systems for end-users.

Graydon's figures speak for themselves. In April alone 46 companies were registered insolvent, compared to 97 in the previous three months.

Dealers have been squeezed from both sides by the downturn in the economy. Customers are cutting back on their IT spend, while suppliers are cutting dealers' profit margins and credit lines. Many resellers have been forced to put their sales ledger up as collateral to obtain short-term liquidity from factoring companies to help cover the time lag between paying their suppliers and being paid by their customers.

Nitin Joshi, a partner specialising in IT suppliers in PKF's corporate recovery and insolvency practice, said he has seen a worrying trend of financial mismanagement and lack of information management processes among resellers in trouble.

Joshi said all IT managers should take steps to vet dealers before signing any significant procurement deal. First consult a credit agency and investigate the history of the suppliers' senior management, he advised. Then demand a reference from another customer and ask to see evidence of the company's financial stability.

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