Suppliers that are affordable and sufficiently stocked are easy to come by, but working with those who are also legitimate and trustworthy is imperative. Combating corruption is strengthening more and more, with harsher penalties on the rise and an increase in resources for organisations helping tackle rogue trading.
Due diligence then, is a significant part of running your business. Here we’ll go into the relevant points that surround the process of carrying out and maintaining due diligence, when selecting suppliers.
Put simply, due diligence is the required action by a business to know its partners. This involves making the relevant inquiries to determine whether a third party, existing or prospective, is honest and legitimate. In doing so, you can be confident that any third party partners won’t make corrupt payments, and will operate in a reliable, lawful manner.
The process is not an exact science; you can be as thorough as you want to be, but we’ll try to guide you in the right direction when carrying out your due diligence. Broadly speaking, the amount of due diligence you carry out depends on factors such as prior experiences, the size of the transaction, cost factors, available resources and time constraints. You can’t know everything about a business, but learning enough to gain an understanding of them in a way that minimises future risks is important and highly recommended.
In some ways, you can carry out too much due diligence – being pragmatic is intelligent, but if you ask too many questions, you run the risk of offending the other party involved, who could choose not work with you as a result. In this situation, the stalling can create ‘analysis paralysis’, where a transaction is delayed or gives the other party time to accept a competing offer. Time and trust should be balanced in a way that allows for the appropriate level of research and investigation into a company.
Why should I carry out due diligence?
At its core, carrying out due diligence in the appropriate manner helps to reduce instances of fraud, contributes to making the right decisions and ensures smoother sailing in the long term when it comes to your business. It helps you understand who you are doing business with, whether you’re ethically compatible and minimises the risk of falling foul of UK laws.
The term itself implies far-reaching investigation into all the relevant aspects of a business or party’s past, present and future which should give further indication of the process’ inherent significance.
Like what you're reading? Sign up below to receive our best content each month...
Once you have identified the third party, or parties, that you want to work with, your process of due diligence can begin.
If the third party is based in the UK and they’re a limited company, the Companies House website can run a search on them. Here, you’ll be able to check their registration date, registered office and access their latest accounts where available, comparing them to the information you already have to see if they correlate.
For VAT registered suppliers in Europe, head to the VIES website to see if their VAT numbers are legitimate.
If your supplier or manufacturer has a standards/quality accreditation, then be sure to read up on their obligations to you and the service that they’re required to provide as a result.
Sometimes you just have to trust your instincts. In your investigation into a third party, there can be some telling signs that, while not as concrete as data, help to indicate who you could be going into business with.
In their sales literature, the supplier should say how long they’ve been operating as a business. The number of years can instil either confidence or doubt depending on the amount, but it’s a good indication of legitimacy.
Look into the registration details of their domain name; it should be registered to the business. If it’s registered to an individual or if the address is different from the one published on their website, take that as a potential red flag.
Don’t be afraid to get on the phone and give the supplier a call, you should be able to glean information from how the conversation goes. Ask them questions about their trading history, how they conduct themselves in terms of business, and what their delivery and returns policies are. Ask them about the products they sell, they should know their products/services like the back of their hand. If you try to call them and they don’t pick up, that’s probably not a good sign.
If your supplier is close by, then it’s definitely recommended that you go and meet them at their warehouse/office. A face-to-face interaction is a great way to get a feel for how they do business.
Sometimes the testimonials on a supplier’s website can’t always be trusted – people still create faked credentials and think they can get away with it. If you can, ask to speak with these people so you can verify their opinions. Quiz them about their dealings with prospective suppliers to see if they’re a good fit.
Alternatively, a quick Google search should turn up some results about them. You might be able to come across some supplier forums, which are a great source of reviews and past experiences. Although the information is subjective, it’s a good indication of how a supplier operates.
Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3395.
The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.
International expansion strategy: How to prepare your business for overseas growth
How to create an effective stakeholder engagement strategy
The Nord Stream 2 gas pipeline explained