Who are you doing business with?

I get it! I really do understand how exciting it is to have a new client or supplier for your business, particularly in the B2B market where there is strong potential for repeat workflow in the future!

But – before you sign that contract (you were going to put one in place right?) – its sensible to do some basic due diligence on exactly WHO your new hopeful is before you push ahead. After all, you want to make sure that they are trustworthy and able to pay their bills!

Business man negotiating

Here are some simple steps that you can take:

  • The quickest and cheapest first step is a Google search and see what comes up!

  • If you are working with a Sole Trader – consider doing a credit check on them to see if they have any County Court Judgments or if indeed they are insolvent

  • If you’re working with a Limited Company or LLP in England or Wales – then a quick check on their company at Companies House. This will give a quick basic health check that they are who they say they are, accounts have been filed, trading company etc. Remember to include the company number in your contract!

  • If the company is purporting to be a professional services company, then check with the relevant regulatory body that they do indeed hold the qualifications they are purporting to hold.

Hopefully the results of your research will be positive – but if its not then DO raise the point with your potential new target. An iffy result does not necessarily mean the end of the relationship because there are always steps that you can take. If you’re working with a large company, it might be that you can contract with a different (read “financially stronger”) company within the group.

Alternatively, you could consider having a separate guarantee or bond put into place to cover the obligations of the original party. Alternatively, you could tweak the terms and conditions of contract to reduce the financial exposure to your business.

These are just some of the tips that I have suggested to my clients during my legal career in the City and working “in house” for large corporate clients. My view is that you need to manage your legal risk – not try and eradicate it altogether!

Can you think of any additional due diligence checks your business should be making on your clients and suppliers to lower the risk of troublesome relationships?

Until next time.

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