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Addressing the David vs Goliath battle in the channel

A quarter of SMEs have felt bullied by a supplier, but they lack funds for legal action. What can they do?

Small businessman vs large businessman

Being a small company in a big channel can make things difficult.

You not only have to juggle the demands of your customers, but also manage your suppliers as well, and they don’t always make it easy for you. To a vendor, you are often a small fish in a big VAR-filled pond, but to your customer you’re often the difference between success and failure as you solve their IT problems and help them innovate to increase profits.

This means you have to choose the suppliers you work with carefully: one reneged contract might not affect their business, but it could destroy yours.

Court fee rises last year have put another obstacle in the way of smaller businesses seeking justice. VARs or MSPs who might potentially be relying on software or services from the supplier, do not typically have the finance to go up against multinational vendors, and therefore, in the event of a breach of contract or instance of professional negligence that directly harms the relationship with the reseller’s end user, tend to shy away from such conflicts.

In fact, research shows more than a quarter of small and medium sized businesses have felt bullied by a larger company or corporation when concerned with general business matters.

The problem is hiring legal help could end up costing your business a fortune – indeed the same research showed 15 percent of SMEs wouldn’t litigate because it’s too expensive and ten percent because of uncertainty over fear of losing: traditional hourly lawyer fees could bankrupt your business, especially if you’re up against a vendor with deep pockets. Furthermore, if you are lucky enough to have an in-house counsel, they might not have the required experience to stand toe-to-toe with the lawyers your supplier has at their command. To a small channel business, it feels like David going up against Goliath.

So how can you combat this? What is your secret weapon? How can a VAR face up to its suppliers without suffering sleepless nights worrying about costs?

The answer is surprisingly simple – litigation funding. Typically SMEs are not aware of the alternative litigation funding options available to them, which remove the risk of standing up to suppliers.

For a share of the winnings, ranging from 10 to 30 percent, a funder pays for the whole litigation process, including the legal fees if the case fails. This allows a VAR to completely remove any risk from the balance sheet and free up cash flow for more important areas of the business. You shift 100 percent of the risk for a small share of the damages.

In addition to this, After the Event (ATE) insurance could reduce the risk of a claim even further. Traditional insurance is ‘Before the Event’, meaning you insure yourself against the event taking place, but ‘After the Event’ insurance is taken out after the event has happened and it means if your claim is unsuccessful, you don’t have to pay your opponent’s legal fees.

In addition a recent study showed that 67 percent of businesses were not aware they could use litigation as a contingent asset. Essentially, any litigation funding gained is not tied down to the legal costs, you can actually use the finance for other areas of your business, such as product development, international expansion, or growth. This means that organisations can use their claims to fund their growth, even if the claim turns out to be unsuccessful.

A combination of litigation funding options will level the playing field between you and your supplier, meaning they will take you more seriously, increasing your chances of getting the best settlement possible.

So, if you find yourself wronged by a business partner used to getting their own way don’t worry about legal costs – if you have a valid case there are plenty of funders that will happily sit in your corner and help you secure justice, without you worrying about your funds running out and your business being put at risk.

Mark Beaumont is co-founder of Annecto Legal

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