Businesses need to verify their suppliers are legit. Purchasing agents need to assess the risk of any supplier before making significant purchases or setting up a supply chain. There are a number of ways of doing this depending on your own business risk level tolerance. If you don’t mind taking chances you might start doing business with a new vendor right away without investigating them. If you are more cautious, you may want to become more intimate with your vendors by establishing lines of credit, meeting face to face with sales representatives, doing site tours, etc.
On trend I have seen more and more of is the use of Dunn and Bradstreet risk assessment reports for professional buyers to check suppliers business habits. This risk assessment takes a detailed look at how they handle their money and gives you a real good idea of what kind of credit and financials they have.
I’ve always associated Dunn and Bradstreet (D & B) and other credit, financial reports with checking a prospective customers. You don’t want to extend credit terms with a customer and not have any idea whether they will consistently pay on time or always be behind in payment. Until recently, I did not associate running a D&B report with setting up a potential vendor / supplier. After all, they supply a product then I supply payment. What is there to lose?
There is a lot to lose actually. One is supply chain continuity. If you are not aware that your supplier is failing to their bills, you might not get product in time and fall behind on production. There is a risk to your assets too. If your supplier is in possession of some of your assets and go bankrupt, it might be a long time before you ever (if ever) see them again.
So what is a D&B Risk Assessment Report? Well, first let me know tell you a few things I don’t know for disclosure. I don’t administer the Dunn and Bradstreet account at work so I am not sure of the subscription cost, nor am I sure of how well this report performs for companies nationwide. I don’t endorse this report or represent D & B but I can say, in my humble experience, it does provide a great deal of information. At work, we use it to assess any new company we intend to send money to for purchase of products and services.
Basically, you enter a company’s DUNS number and the US state they are in and a report is available to you (there is a subscription involved). We typically ask the business for their D-U-N-S code via a credit information request form.
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The report tells you (not a complete list, just trying to give you an idea):
Paydex Score (basically a credit score for paying invoices on time)
How fast or slow in days they pay invoices
Number of bankruptcies, judgements.
Whether their financial stress is high or low
What credit limit they can tolerate
How data compares to other companies
How well they pay within terms
Public filings
UCC filings
etc, etc, etc
The report is about 18 pages and contains a lot of details. More than I mention above. It is a lot of information. Again, I don’t endorse Dunn and Bradstreet and I’m not even sure the subscription cost. Honestly, our finance department manages the subscription and I doubt our company controller would give it to me simply because I want to add that detail into my blog :-) If you want to share that info, feel free to comment.
Regardless if you use Dunn and Bradstreet or your own methods to check credit history, keep in mind that once you are fine with a vendor’s financials you will need to start taking steps to show that your company is in good shape. I wrote an article on how to set up a business to business credit account. The post will go into detail on how to make the right form to send to your supplier to share your credit history, trade references, etc. (click here) Check it out.
Hopefully this gives you a real basic overview of this risk assement tool. Please read some of my other posts if you get a chance.
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