To get right down to it, there can be serious consequences to your business when working with a supplier that isn't financially stable. You spend time and money vetting, auditing, and negotiating; everything seems to check out only to find out that the supplier can't fulfill your order. Of course they are not up front about any financial issues because maybe they think, this customer could be the ticket out of the weeds.
Discovering financial instability before it becomes an issue can be very difficult, especially since private companies are not required to publicly divulge their financial standings like public companies are. Even if a private company chooses to share financial statements with potential customers during an audit, documents can be doctored up to look better than the reality. These are certainly not situations you ever want to find yourself in so let's dive into a few key questions to consider when looking at potential (or even current) suppliers.
How do you know if a supplier is financially stable?
- Did the suppliers credit references check out? First and foremost, if a company refuses to provide credit references, that is a red flag. If they do provide references, it is important to follow up on them - the age old saying "trust but verify" is key here! Just because they provided references doesn't mean you should trust the validity of them, you must verify.
- Is the company investing in itself? Are they growing? Have they recently purchased new equipment? If the company is growing/expanding, that is typically a good sign that they are financially sound.
- What are their payment terms? If a company does not allow Net 30, and requires the money up front, that is a red flag that they do not have the capital to produce the product.
- How many years have they been in business? This is not to say that new companies are lacking financial stability, or that established companies are always stable but it is an important point to take note of.
- Evaluating a supplier should be a yearly occurrence, financial stability can change, a company you have worked with for years can come under hardship.
- Do some research into what other companies have chosen this supplier, good companies choose good suppliers!
- Check out this blog post on 10 Things to Look for in a Supplier
A lot of user interface manufacturers have come and gone over the last 40 years, do your due-diligence to ensure you won't be wasting time and money on a supplier that isn't financially stable.