bankruptJust how financially stable are the vendors that supply your firm with hardware and software, and should you be concerned about their well-being? The answer to that depends on what products they supply to your firm.

For example, if your hardware vendor goes bust, you’ll simply find another one. Sure, it will take time for them to get to know your system, but it is unlikely that your firm would be too adversely affected. And even if your vendor did go bust, one solution might be for a group of firms to sign a services agreement with the vendor after their firm has gone under to retain their services. However, if the manufacturer of your mortgage software system goes belly-up, it would be more difficult and more urgent to implement a replacement, since banks regularly issue updated requirements that need to be built into the software.

It is likely that the economic slump will result in some vendors closing their doors, but this depends on the profitability of the vendor, and the financial backing that it enjoys. It is also likely that the slump will still last for a few years, so vendors that are already taking strain will have a long wait. To add to their woes, law firms are unlikely to invest in much new technology until the economy recovers, so vendors are going to find it tough to survive.

Hardest hit are the vendors linked to the property market, since conveyancers have seen a 70%-80% reduction in property transfer volumes. Especially hard hit will be the vendors who sell their software on a transactional basis. But in South Africa, all of the conveyancing vendors enjoy sound financial backing, and should be able to ride out the storm, even if it lasts for another two or three years. In the worst-case scenario, if one of these vendors did come unstuck, it is likely that they would be acquired by another player, as happened once before a few years ago.

Less exposed are the legal accounting software vendors and those vendors who aren’t solely reliant on conveyancing software for their income. This is where annuity revenue becomes so important for vendors, since those vendors that rely on a once-off sale price could run into financial trouble as sales dry up. But even if your legal accounting vendor did go bust, you would in all likelihood be able to carry on using the system for some time to come, since there are very few legislative changes made to legal accounting. And, as with conveyancing software vendors, any accounting software supplier that runs into trouble will almost certainly be acquired by one of the other vendors.

But it is very likely that some vendors will close up shop before the economy recovers, although these closures probably won’t have much of an impact on law firms since there are a number of vendors that supply similar products to the profession. That might mean you need to purchase (or rent) new software and re-train your staff, but this is unlikely to cause any long term damage to your firm.


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