Carry out supplier due diligence
What due diligence checks should you run on prospective suppliers before you enter into contract negotiations with them.
Due diligence is a significant part of finding suppliers. Before entering into a contract, it's essential to make enquiries and carry out research on prospective suppliers to ensure that they are legitimate and trustworthy.
How to run checks on a new supplier
As a starting point, you should credit check potential suppliers to ensure they have the cashflow to deliver what you want, when you need it. This is especially important if you're entering into a long-term contract.
For example, if there is a single supplier in a certain market, and there are no substitutes for the product or services they are offering, you need to be sure that it isn't at risk of going out of business. The supplier will probably also run checks on you to ensure you have the means to pay for its goods or services.
As part of carrying out due diligence, you may also want to:
- check business registrations and public documents
- validate standards or quality accreditations
- ask for samples, if applicable, to assess the quality of their supply
The process can be as extensive or as brief as you want it to be. How much detail you go into should depend on how critical the supplier's product or service is to your business.
Check customer reviews and references
It's a good idea to get references for the supplier from other customers. The supplier should be happy to put you in touch with some of its existing or previous clients. If not, ask yourself what they might be trying to hide.
It is unlikely that the supplier will put you in touch with a dissatisfied customer, so make sure that you do some independent searching. You may uncover some information online, or across some supplier forums - it may be subjective, but it should give you an indication at least of how a supplier operates.
Sometimes a manager in a business bids for contracts and then passes the account to someone else. If this happens, make sure that you're happy with the person tasked to do the work - and that you can still deal with the manager if any problems arise.
See how to build strong supplier relationships.