Suppliers are an indispensable or key part of the business cycle depending on the nature of business. Big businesses often have a large pool of suppliers to draw from while smaller businesses have a smaller pool of suppliers they work with.
With smaller businesses, it is easier to check regularly the accounts of the supplier.
But with bigger businesses, because of the large pool of suppliers, these businesses only do a check at the beginning of their working relationship and do not check their accounts regularly.
The irony is that many small and big businesses default in the regular checking of suppliers’ accounts. Their logic is simple, they do not see it as an essential activity.
Checking the validity and financial status of suppliers should be a reoccurring business activity. The same way you do audits to check your business regularly, it’s the same procedure and frequency to follow for evaluating suppliers (both new and old).
It does not matter if the supplier is reliable, proven, and trusted, or if you have been working with them for a long time without any glitch in the relationship.
The best business practice will tell you to isolate emotional attachment from your business dealings. It cost almost nothing but a little time to regularly check the account of suppliers.
There are a lot of reasons why you should check regularly the accounts of your suppliers. The damage a defaulting supplier can do to your business is huge.
Whenever a supplier fails to deliver, it affects the operation of your business. You can lose customers, fail to reach your production benchmark, and most importantly incur additional costs to fixing the problem.
All these are preventable especially the cost (no one likes to pay avoidable bills) if you set up a structure to regularly evaluate the performance and account of suppliers.
If you think unplanned business expenditure is the worst thing that can hit you as a result of suppliers failing you, think again.
There is nothing more damaging to a business than for it to lose its reputation and credibility. If suppliers fail to deliver, you bear the brunt of the consequences.
The reputation of your business which you built over the years can be affected by a defaulting supplier.
For example, if your business is heavily dependent on suppliers to function, fault from the angle of suppliers can ground production and make you fail to meet the expectations of your customers.
Customers are fickle, once they see you are no longer delivering as expected, they leave you in a heartbeat for your competitors.
It can also cause a ripple effect on the entire structure of your business. You can lose key workers as a result of poor management of the situation that arises when suppliers fail to supply on time.
Over time, regular suppliers’ defaults will make your business lose money. Huge losses can force you to sack workers to keep the business afloat or someone else may be blamed for a situation that was caused by erring suppliers.
Suppliers’ failures can also disrupt the production process. It can either halt production, slow down production, or cause you to look for other alternatives (that can prove more costly and difficult to find) within such short notice.
When your products are affected, profits drop. To avoid this uncertainty and crisis in your business operations, endeavor to regularly check the accounts of your suppliers.
If the above reasons are not sufficient or thought to provoke to challenge you to adopt a regular checking mechanism on the account of your suppliers, the following points will do the trick.
You save money because of this process
It is already obvious how we can save money from simply checking regularly the financial status of our suppliers. By regular checkups on suppliers, we can gauge their financial health and get a wrong estimate of their ability to keep the supply chain going.
All the complications that come with suppliers failing to deliver are better prevented. The additional cost you would have incurred is saved. Also, you can use those saved funds
The risk associated with using suppliers are mitigated
The whole business process is risk. You can significantly lower the risk by doing some regular financial and operational checks on suppliers, especially the main ones that supply essential products.
When conducting the regular check, make sure you check the following areas: the performance level of suppliers (how efficient and reliable have suppliers been in recent times) and the account of suppliers (what is their financial status? Is the account healthy or in debt?)
By doing these checks regularly, you can predict if suppliers will have delivery issues or not. You anticipate potential supplier problems or failures before they occur and can make the necessary adjustments.
Get to know if suppliers are maintaining the right standards
How do you know if suppliers are maintaining the standards in their supply responsibility if you do not audit them regularly?
Without these checks, you will not know quickly when the standards of products supplied drops.
Remember that your business has to maintain high standards. Yes, you are keeping your part of the bargain to your customers but are your suppliers doing the same?
Without regular checks, suppliers can relax, reduce standards to cut costs, and help jeopardize the integrity and reputation of your business. At the end of the day, it is the business and not the supplier that is affected the most by suppliers’ failures.
You must put pressure on suppliers with regular checks on their accounts to know when they are in distress to prevent it from affecting your business.
Checking the account regularly of suppliers helps you reduce and anticipate future problems with suppliers before they occur.
You put suppliers on their toes to deliver the best quality products at the best price by simply checking up on their accounts and the standards of products they supply.
You strengthen relationships with suppliers this way. If you give suppliers a free opportunity to supply without checks, you will end up regretting it.