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29 Mar 2017

Look ‘em in the eye: How to validate your suppliers and sub-contractors

What could Ernest Hemingway, Stalin, and Tupac tell us about good business? That’s a mixed bag of folks, admittedly, but they all said one thing: trust no one.

A cynical way to make a living, but it’s a safe one. Cut corners with checking up on suppliers and sub-contractors and any business risks its reputation, prosperity, and client base. For example, as many as 675,000 businesses have fallen victim to a fake invoice fraud at some point in their trading history. Not to mention the companies that have been let down in front of their clients by poor quality or non-compliant sub-contractors. Yikes. This is a club worth avoiding. So, what do we do about it?

Know the threats

This is by no means an exhaustive list, but just a snapshot of the possible shenanigans.

First up is invoice and mandate fraud – where a supplier or contractor phones or emails and asks you to change bank details or the bank mandate. Probably not the usual point of contact. They’ll have a compelling reason, but beware.

Procurement fraud is a complex beast that helps a dishonest supplier or sub-contractor win a tender over better qualified candidates. This may involve collusion with a company’s own employees, and often there will be bribes, gifts, or other ‘backhander’ nonsense. Nasty.

Watch out if a former supplier or sub-contractor becomes insolvent and owes money or services – some fraudulent companies will then trade under a different name – a ‘phoenix company’, rising from the ashes – in order to avoid paying their dues.

Beware of suppliers and sub-contractors whose standards are not as high as your own. Take, for example, Occupational Health & Safety Management standard ISO 45001, which emphasises business ‘context’. Under this heading, all businesses must examine all the issues that could impact on their ability to meet their OH&S responsibilities. And that includes suppliers and sub-contractors. Every link in your ‘business chain’ needs to be safe, or you risk your hard-won certification.

Materials and fabrications may not always be what they seem. To reduce manufacturing costs, some manufacturers may use materials and parts that are far cheaper than you would choose yourself. If such parts or materials fail and you provided them, it’s your reputation on the line. 

Protect yourself

Thankfully, protecting yourself against fraud and poor services is not rocket science. It takes a bit of effort to validate suppliers and sub-contractors properly, but it’s not hard. Here’s how.

  • Before doing business, send out a pre-qualification questionnaire to potential suppliers or sub-contractors. Ensure it covers all the important criteria: is their certification UKAS verified; can you see copies of their policy statements; are all their insurance documentations in order?
  • After scrutiny of the pre-qualification questionnaire, consider an on-site validation in the form of an audit. Sounds onerous, but you won’t regret it.
  • Visit your potential supplier or sub-contractor. Have a coffee and walk round the premises. Does everything look in order and the staff look happy and engaged? Do they share your values? If your skin crawls at all, if anything unsettles you, trust your instincts. They’re not right for you.
  • Google is your friend. Before you do anything, check potential suppliers and contractors with Companies House and Google their names alongside keywords like ‘complaint’ and ‘scam’ to see what the internet throws at you.
  • Call industry contacts and get the low-down on suppliers and contractors you are considering.
  • Keep your eyes open for your own employees covering for, or colluding with suppliers. Be prepared to challenge anyone, even those on your payroll.
  • Make sure your suppliers provide the quality you expect. It’s rarely enough to just check a batch number.  If it’s high risk, validate the materials. If you need to, go back and ask for full traceability. The results may be fine, or may highlight issues you need to address.
  • Manage expectations. Provide your suppliers with clear instructions as to what you need. This isn’t just about price, quantity or delivery. It could involve quality checks, audits, or a Quality, Inspection and Test plan.

Get to know every supplier or contractor you work with. You’ll soon get a feel for the ones you know will do the right thing.

Sources:

http://www.experian.co.uk/blogs/latest-thinking/three-reasons-check-suppliers-bank-account-data/

http://www.actionfraud.police.uk/small-businesses-know-your-suppliers

http://www.infoentrepreneurs.org/en/guides/manage-your-suppliers/