It’s vital to review regularly your business relationships, warns Harpal Singh, managing director of Conveyancing Alliance Ltd
The common consensus among most commentators is that we will continue to see a contraction in the number of financial services firms over the next couple of years at least. This could be down to any number of reasons but the fact is that many firms (particularly in the mortgage sector) have been mortally wounded by the credit crunch and recession and this is particularly worrying for the mortgage advisory firms who may be relying on them.
Of course the major industry collapses have up and till now been in the network sphere with firms such as Network Data, Premier Network Group and Mortgage Times collapsing (often spectacularly) leaving brokers frustrated and, importantly, out of pocket. I have real sympathy for any firm that has been burnt by these firms going into administration and it is to be hoped that all others in the industry use these salutary tales to review their current business relationships. Given the state of the market and the economic conditions we have all put up with over the last 12-18 months, it is likely to happen again which is why we should all be doing our homework on the firms we deal with.
It is not just the mortgage sector which is seeing its fair share of firms going to the wall. At one point, the number of firms offering HIPs, for example, seemed to be growing exponentially, however we have seen numerous propositions leave the market including just last week one called mysalepack. Solicitors are also not immune with the Solicitors Regulation Authority recently closing down conveyancing solicitors Wolstenholmes.
It can be difficult to know exactly what is going on at a firm, but in these circumstances the old adage, ‘there’s no smoke without fire’ is relevant. A major warning sign is if the service you (and your clients) receive starts to deteriorate, and of course, as the major networks which failed recently showed us, any significant delay in payment should also be treated as a ‘worst case scenario’.
It is quite natural for many advisers to take a ‘wait and see’ approach when it comes to relationships with suppliers, particularly those that have been established and worked successfully for many years. It may be difficult to get to the root cause of the problems, particularly if the firm is suggesting this is some sort of ‘short-term blip’ or there is blatant obfuscation. However, firms should continue to press those at the top about the level of difficulty that is occurring and when the problem is likely to be sorted.
Until things are back to normal where possible firms should stop their existing relationship and look to use alternative suppliers. Hopefully, everything will be back on track soon, however, there is no point throwing good business after bad and there will be plenty of alternatives available in the market that will not be in such a position and are able to meet all expectations of good service and prompt payment.
In reviewing your suppliers to see the likelihood of their failing I would also review all the areas they work in. For example, in the conveyancing sector, there are many solicitor firms who only conduct this type of business. Conveyancing is not just their bread and butter, it is their only meal. In our panel of solicitors all bar two firms conduct the full range of legal services, not just conveyancing. This means that if one sector suffers, as conveyancing has done in the recent past, then the firm has other areas of business which can ensure its survival. Effectively, these firms are not being held up by one pillar they have a diversified array of services which means they are less likely to go to the wall when one sector suffers.
Having all your eggs in one basket may seem the right thing to do when business is booming, however markets are cyclical and we have all seen a major downturn in business levels in the past few years. This is why it is vitally important that broker firms are confident and clear about the firms they conduct business with. It probably makes sense to spread your business between a couple of suppliers if possible.
Please do not confuse this as a ‘glass half empty’ attitude. Protecting your pipeline of income is a sensible and positive step in the current environment. No-one wants to be suffering because of the actions or failings of other businesses.
The process of review does not need to be about going through every facet of a supplier’s operation with a fine tooth comb. But, what it does need to be is realistic and responsive to problem areas which may arise and may be examples of much bigger, deep-seated problems at the firm. Those intermediary firms who stayed on until the bitter end with the networks mentioned above will probably now be wishing they left at the first sign of trouble. Yes, hindsight is a wonderful thing but action can be taken before a problem escalates it is to be hoped that no intermediary firm gets burnt by the actions of others but firm failure is an ever-present part of business and therefore firms should do all they can to protect themselves against it.