The majority of businesses will at some point or consistently rely on one or several suppliers to provide much-needed goods/services necessary for the running and growth of the business. Whether it’s eCommerce fashion stores sourcing fabric to construct clothing, large agricultural firms buying a new commercial vehicle or even small consulting business having a new website built; choosing the right supplier is critical to the stable operation, success and long term growth of the business.
So how do you find a supplier who can deliver and whom you can trust? You can’t, well not 100% but you can give yourself an excellent idea of whom you should do business with by evaluating the supplier on several key factors.
When it comes to choosing a supplier many businesses end up going to the first entry they find on Google; this is generally a mistake in terms of evaluating a supplier on price.
Aside from having some understanding of the value of services or product you would be purchasing, to understand and accurately asses the price the supplier is offering you’ll need to get quotes from multiple suppliers (to allow comparison). Depending on the size of the transaction proposed, a business should get at quotes from at least three different suppliers.
Unfortunately getting a range of quotes from different suppliers can be a communication and negotiation nightmare, it’s a reality that it requires legwork but is worth doing on larger transactions especially when you’re unsure about supplier value in terms of pricing. If you don’t have the time or aren’t so inclined, you can also check out platforms like QuoteGrab to source multiple quotes.
When evaluating any supplier, the first thing you should do is make sure they’re a legitimate company/organisation and are in good standing. To do this, you’ll want to go over to Companies House and search for the company. Once you’ve found what you think is the potential supplier’s company, you need to doubly confirm it’s them by cross-referencing company number and registered address (typically found on supplier websites).
Now it’s time to start evaluating. First, on the main company page make sure the company is listed as active (any other status should set alarm bells) in a worst-case scenario this check can avoid your business ending up trading with a company that’s about to be struck off.
On the same page, you’ll also want to check incorporation date, giving the exact age of the company which is typically a good indicator of the durability of their business (implying a successful trading history).
You can only really infer from this factor, but it is seen as an essential indicator by many respected organisations who carry out company checks as routine, for example; company age is commonly used by asset financiers and other financiers as a factor in assessing applicant suitability for business loans.
On the same page find the button marked “Filing history” and click through, this will show filing history for the company, showing you all the publicly available documents held by company’s house (accounts, confirmation statements, charges…).
The first thing you should search for here is if there are outstanding charges against the company (charges are loan agreements where the business supplies assets as collateral, by law these must be registered with company’s house). Charges typically come in the form of mortgages. While not particularly alarming by themselves (as many healthy companies rely on business mortgages and other facilities such as asset financing to support growth), charges are a good indicator of how leveraged a business might be in terms of debt (and if any debts are overdue). This gives you insight into the financial state of the supplier you might be about to start to work with.
The second thing you should check is if the supplier is filing their accounts and statutory filings within the dates required as required. Sometimes it can be that accounts or other filings are delayed, this by itself should not necessarily concern you (unless other factors make you believe filing is postponed for a negative financial or other reason).
However, it should be of concern if the company has a history of filing required documents late. Lateness can be an indicator of poor organisation and should make you rethink if the supplier is trustworthy when it comes to delivering within agreed time-frames if they can’t file basic company paperwork on time (past behaviour is a good predictor of future behaviour).
UK based private companies in all forms are usually required at the very least to submit an abbreviated version of their accounts to HMRC. Companies House also stores these documents on the filing page, where you can view previous financial filings (including abbreviated accounts). Now while it might take you some to sort through and make sense of the figures, if you’re considering making an ongoing or one-off large transaction with a potential supplier, it’s well worth perusing their annual accounts to assess their financial health.
However, regarding the accuracy of accounts data, do bear in mind the window for submission of annual accounts to HMRC is usually up to 9 months after an accounting period ends. This means accounts will in most cases only give you an outdated snapshot of the company’s financial health and will not necessarily be representative of the company at the time you view them.
Determining the track record of a potential supplier with previous clients is often one of the best and most reliable ways to ascertain if purchasing and building a relationship with them is going to make sense in your specific circumstances. To determine overall track record below are several key avenues you should explore.
Thanks to the internet both happy and dismayed customers can now make their voice heard clearly, review sites like Trustpilot allow you to see public comments from previous customers of a business. It’s well worth checking several of these review sites for what customer opinion is on any potential supplier, again look for a track record of happy or unhappy customers and why to give you an idea of the track record of the supplier in dealing with customers.
There is one caveat to the above we’ve often found that there can be many fake positive or negative reviews on these sites. We would assume paid for by a supplier to appear better in the eyes of a potential customer or by a competitor to make a supplier look poor.
The quantity of fake reviews does depend on the review site and the mechanisms they have in place. However, no full proof system stops fake reviews so you will need to make your own assessment of what’s real in many cases. In terms of spotting fake reviews, pretty reliable warning signs are if the language of a review sounds off or doesn’t read as native English you should be suspicious straight away (of course only if the company is solely trading in the UK and selling to UK customers would this ring true).
Have you ever been emailed by a supplier and asked for a testimonial about their company, product or service? Then it’s likely you run, manage or own a business.
In the reverse of this situation, testimonials apart from being good product marketing can be a useful starting point when assessing a company’s track record. Though they may be overly positive, they allow you to see some of the supplier’s previous clients (who can give you a real understanding of what it’s like to work with them).
It’s well worth having your managing director (or yourself if that’s you) draft a few short emails asking these previous customers how their experience has been working with the potential supplier, this feedback can sometimes be invaluable.
Awards are given to companies or organisations that show particular merit in a specific industry or field. Thus, having a look to see if the supplier has won any industry or well-known awards for their work, products or service provision is well worth doing.
However, you will need to assess the validity of the awards organisation as many industry-based awards and business competitions rely on the businesses there awarding for funding (which could be somewhat to result in a conflict of interest in choosing awardees).
Supplier evaluation is about multiple factors
In normal circumstances, no single factor will allow you to evaluate a supplier accurately. It’s the combination of various factors that will enable you to evaluate a supplier accurately and whether to do business with them.
Additionally here are some final ancillary factors that are worth checking on if you’re pursuing an in-depth analysis of a potential supplier:
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- Contact the supplier’s customer service, see how long it takes to reply and how they respond to assess customer service and response.
- Use company house director information and take a look at the profile of company directors on LinkedIn and other social media networks for any red flags (Fake profiles, poor company history…).
- If the business has a website (assumed these days), then check their most recent blogs and social media posts, look for consistency in posting, subject knowledge and how they treat those who interact with the content.
- If the transaction is large and service-based ask for a sample contract to review, look at the legal wording, protection clauses and how they present (if it’s a complicated deal it’s well worth having a commercial law firm look over the contract and give their opinion).
One final note, always remember the amount of factors you check and due diligence you carry out on a supplier should be proportionate to the risk (to avoid wasting time or spending too little on supplier evaluation).