Checklist: Key steps to validate suppliers before procurement
With the increasing complexity of supply chains and convergence of a wide range of regulations, supplier controls has become more crucial than ever. We have gathered everything you should check when procuring a new supplier.
What kind of company is it?
Although it might seem self explanitory to check the new supplier or customer before entering an agreement, it might be hard to know what to look for and what the warning bells are.
One of the simpler but more valuable risk indicators is to check the status of the company, such as bankruptcy and reorganisation. Here one should not forget to look at the historical information. A reorganisation can be completed without the company being declared bankrupt, but it can still give an indication that the company has had financial and operational challenges in the past. Other things to keep an eye out for is if there have been many changes of address in a short period of time, and if the company appears in legal contexts. Below we have gathered some additional checks that may be useful to carry out:
Are there more companies with similar names?
Business premises or postal address missing/incorrect
What is the box address or c/o address?
The address is "notorious"
Are there instances in legal contexts?
Another important thing to check before entering into a contract with a new supplier is whether that company, or its representative, appears in the legal context.
By carrying out these types of checks, you reduce the risk of being exposed to fraud, while ensuring compliance and creating long-term, sustainable business relationships.
How does the economy look?
The financial figures of a company can give indications that all is not well, or lead to follow-up questions being asked of the potential supplier or customer. Checking creditworthiness can be a good starting point, but other parameters are also important. Such as the turnover in relation to the number of employees, if the company registered for F-tax or if there have been a large and rapid changes in turnover or number of employees?
Below are some other things worth controling before entering or sgning an agreement:
What are the financial figures for the company
High turnover change in a short time
High turnover despite few employees
Low turnover over several years
Who represents the company?
Sure, it's good to control the company in question, but do you really know who you're doing business with? Checks on company representatives can potentially reveal information that will make you reluctant to carry out or cancel the contract.
Things like discrepancies in the stated signatory, versus what is officially registered, a very young/old board member can be potential warning bells. Below we have gathered additional information, worth checking:
Many board changes in a short time/incomplete board
Board involved in previous bankruptcies
The company has no auditor
Who controls the company other than the Board of Directors?
