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. Invoice fraud alone cost businesses almost £93 million in 2018 (Source: Invoice fraud: many small businesses aren't aware of the risks). 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? And can we really do anything when times are so hard during Covid?
Seek out quality to protect your own
Seek out those suppliers who have the same high standards you do. Ideally, your supplier will be able to prove their quality by having certification in key ISO standards, or at the very least, will have certification in ISO 9001 for Quality Management. Be wary of suppliers who have let any certification lapse during COVID – that in itself speaks volumes. (We’ve written about this elsewhere: What Stephen King knows about protecting your business - isCompliant)
Beware of suppliers and sub-contractors whose standards are not as high as your own, because many ISO Standards will put some responsibility on you to check their integrity. 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’ll risk your own, hard-won, certification.
Know the threats
When managing suppliers, it’s imperative that you know them inside out, warts and all. If you don’t, you’re prey to any number of fraudulent practices. What follows is by no means an exhaustive list, but just a snapshot of the possible shenanigans.
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First up is invoice and mandate fraud – where a supplier 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.
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Procurement fraud is a complex beast that helps a dishonest supplier win a tender over better qualified candidates. This may involve collusion with a company’s own employees, possibly using bribes, gifts, or other ‘backhander’ nonsense. Nasty.
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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.
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Materials and fabrications may not always be what they seem. To reduce manufacturing costs, some manufacturers may use materials and parts far cheaper than you would choose yourself. If such parts or materials fail and you provided them, your reputation’s on the line.
Protect yourself before you start
It takes effort to validate suppliers and sub-contractors properly, and perhaps a little extra effort while Covid restrictions linger. But it’s not complex, and most of it can be done remotely.
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Before doing business, send out a pre-qualification questionnaire to potential suppliers. Ensure it covers all the important criteria: is their certification UKAS verified; can you see copies of their policy statements; are their insurance documentations in order?
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After scrutiny of the pre-qualification questionnaire, consider a validation in the form of an audit. Sounds onerous, but you won’t regret it. Of course, it’s ideal to be able to carry this out on-site, but even a remote audit will throw up any concerns.
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Google is your friend. 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.
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Call industry contacts and get the low-down on suppliers you are considering.
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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.
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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.
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Even during Covid, there’s nothing better than an (albeit socially distanced) visit to your potential supplier or sub-contractor. 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.
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If everything is in order and you’re ready to (virtually) shake hands, establish a single point of contact (SPOC) with your supplier. A common scam for fraudsters is to assume the identity of a known supplier and request that payments be diverted elsewhere. Having a SPOC makes that almost impossible to pull off.
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.
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