by By Louise M. Felsher, CMP, CMM | November 01, 2009

While it always makes good bus­iness sense to protect oneself against supplier failure, a recession calls for even more vigilance. You don't want a meeting to be ruined by a hotel that goes out of business, a registration firm that implodes or an airline that suddenly cancels service to your destination days before the event is set to take place.

Following are some major red flags signaling that a vendor might be in trouble, along with advice on how to handle the situation.

Advance Payment
If a vendor requires full payment or a substantial up-front deposit, remember: If that company is not in business by the time your event takes place, you will be out a substantial sum.

Most financially sound firms won't make that request, unless your company has a reputation for not paying in a timely manner or the vendor has been badly burned by others.

Solution: Besides conducting due diligence (researching the supplier's business history, contacting several references, etc.), inquire about the insistence on a hefty deposit. Ask if they would consider payment via an escrow account instead. This type of account (which ideally should be arranged with your company's bank) holds the money for the vendor with a promise to pay it out at a certain time, pending the delivery of specific goods and services.

Escrow accounts are safe for both parties and often collect interest. (Determine in advance if the interest will be payable back to your organization, the vendor or a charitable cause). It's rare that a reputable vendor will turn down an escrow account, especially if the client company is willing to prepare the account.

Is the supplier wildly inconsistent in how its representatives treat you and what they offer? Are they picking fights or acting defensive at one point and then contrite and effusive shortly afterward? For example, does a hotel's sales representative promise plentiful and generous concessions one week, then become argumentative and cut back on perks the next?  

Solution: Unless you have a valued, long-term relationship with the vendor and you know exactly what is causing the mood swings, steer clear. If you have a signed contract, discuss the inconsistencies with the vendor's senior management.

If you are still uncomfortable with the situation and are concerned about the survival of your vendor, you might be able to cancel the contract on the grounds of the vendor's failure to meet contractual requirements. Most contracts contain a clause that stipulates inadequate performance as grounds for cancellation. Inadequate performance can include missed deliverables and meetings with you or your staff.

New Services
If a vendor suddenly branches out into new areas and begins offering new services, think twice. If the new offerings make sense and the company is progressively moving forward, this is a great thing. For example, event marketing companies that embrace digital solutions, social networking, etc., truly are on the cutting edge.

However, be on the lookout for firms that add services that seem to make no sense, such as a registration company suddenly branching out into transportation.

Solution: If your current vendor is touting something odd, you have every right to be concerned and ask what business decisions drove this move. Depending on the answer, the vendor could be truly brilliant or nearly bankrupt. You don't necessarily need to pull the plug, but understand what's going on and protect your interests.