Supplier due diligence checklist for overseas buyers

Supplier due diligence is the careful checking you do before you sign with a new supplier. For an overseas buyer, it comes down to six checks: confirm the company is real, read its financial health, call its references, verify its audits, test its samples, and write the contract terms down. Do them in that order. Stop if any one fails.

This checklist is for buyers who cannot visit the factory easily. Each step takes hours, not weeks, and costs far less than a bad first order.

Sources: Wikipedia, "Due diligence" (definition as the care a reasonable business takes before entering an agreement).

1. Confirm the company exists

Start with the official company registry in the supplier's own country. Registries record a company's legal name, its status, and often its officers and filings. Match the name on the registry to the name on the quote, the invoice and the bank account. A different name is a warning sign.

Singapore is a good example. Its regulator, the Accounting and Corporate Regulatory Authority (ACRA), sells business information and company reports to the public. Many other countries run similar registers, and some are free to search.

Also check the status. A company that is struck off, dormant or in liquidation should not be taking your deposit. Ask for the registration number and the registered address, then confirm both yourself.

Sources: ACRA, "Buying business information" (business information products and reports for the public); Wikipedia, "Corporate registry" (what registers typically record); Wikipedia, "Accounting and Corporate Regulatory Authority."

2. Read the financial health

A supplier that is short of cash may cut corners, delay orders or disappear. Ask for recent financial statements. Where the registry holds filed accounts, compare them with what the supplier sends you.

Look for three simple things:

Size. Can the supplier handle your order volume without strain?
Trend. Are sales and cash going up, flat or falling?
Debts. Are there large loans or claims against the company?

If the supplier will not share any numbers, keep deposits small and pay in stages.

Sources: Wikipedia, "Corporate registry" (filed financial statements are held by some registers); the checks are the editors' own practical method.

3. Call real references

Ask for two or three current customers, ideally in your own country or industry. Then call them. Ask how often orders ship on time, how the supplier handles a defect, and whether they would order again.

Do not rely on a list of logos. Ask for a named contact. Keep your questions plain and the same for each reference, so you can compare the answers.

Sources: The reference-call method is the editors' own practical guidance.

4. Verify quality systems and audits

Many suppliers say they are "ISO certified." Test that claim. ISO 9001:2015 is the quality management standard, published by ISO on 23 September 2015. It sets requirements for how a company manages quality.

ISO itself does not certify companies. Independent certification bodies audit the company and issue the certificate, and certificates are usually renewed about every three years. So ask for a copy of the certificate and read four things: the company name, the site address, the scope and the expiry date. Then confirm it with the body that issued it.

If you cannot travel, consider a third-party inspector to audit the site for you. Ask for the report, not a summary.

Sources: Wikipedia, "ISO 9000" (ISO 9001:2015 published 23 September 2015; ISO does not certify; certification bodies audit; usual three-year renewal).

5. Test samples before the order

Paper checks cannot show you how a product feels or performs. Order samples before you place a full order. Make sure the samples come from the real production line and not from a showroom.

Write down what a pass looks like before the samples arrive: size, material, finish, weight, and any tests you need. Keep one sample sealed. When the main order lands, compare it with the sealed sample.

Sources: The sampling approach is the editors' own practical guidance.

6. Put the terms in the contract

Good checks only help if the contract holds the supplier to them. Make sure it covers:

The exact legal name, registration number and address you checked.
Product specifications and the approved sample as the quality standard.
Delivery dates and what happens when they are missed.
Payment steps, with a part of the money held until the goods pass inspection.
Your right to inspect, and what happens to rejected goods.
Which country's law applies and how disputes are settled.

For high value orders, ask a lawyer who knows the supplier's country to review the contract. Large companies also use due diligence to vet overseas partners and vendors for corruption risk, so keep a short file of what you checked and when.

Sources: Wikipedia, "Due diligence" (vetting overseas partners and vendors, and compliance uses); contract points are the editors' own practical guidance.

A quick recap

Confirm the company. Read its numbers. Call its customers. Verify its audits. Test its samples. Lock the terms into the contract. Keep notes of each step. If a supplier pushes you to skip any of them, treat that as a reason to slow down.

Sources: Wikipedia, "Due diligence"; Wikipedia, "ISO 9000"; ACRA, "Buying business information."