Why do Companies have to Verify their Suppliers?

Verify their Suppliers

Quality is a criterion that every individual or organization aims for. It is the most important aspect to consider when starting a business to keep it functioning smoothly. Organically growing businesses are those that deliver superior products/services.

Being watchful from the start is important so any discrepancies can be eliminated before they turn into undesirables. All businesses must properly verify their suppliers, vendors, and dealers. These are the people who make customers place their trust in a business. A dishonest or unorganised supplier can disrupt your supply chain, reduce profitability, and, in extreme situations, lead your business to collapse. Meanwhile, collaborating with the appropriate supplier might be your business’s missing piece to thrive.

When your business works with outside suppliers, the connections you form could have a significant influence on your bottom line.

This article will discuss “Why do companies have to verify their suppliers?”. But let’s first discuss What Is Supplier Verification?

What Is Supplier Verification?

Generally, a business cannot manufacture the raw resources it requires and the finished goods it sells to customers efficiently. To manage a more lucrative business, a company should get materials from others, often known as suppliers or vendors. However, before your SMB engages with a supplier, it must undertake some research.

Supplier verification, often known as vendor validation, ensures that a supplier with whom your business wants to enter into a contract is genuine and trustworthy. If your business is subject to regulatory obligations or other standards, you must ensure that the suppliers you engage with follow the same guidelines.

Now you get a little idea. “Why do companies have to verify their suppliers? And “what is supplier verification”?” Now let’s discuss the reasons your company needs supplier verification.

Reasons Your Company Needs Supplier Verification

Since selecting the appropriate suppliers is essential to the success of your business, it’s a good idea to look a bit further.

Here are the top five reasons your company needs supplier verification:

Fraud Prevention

Fraud is a major source of concern for businesses of all sizes. In the previous two years, over half of the businesses have reported some kind of fraud. Customers, vendors, suppliers, and customers and hackers were responsible for 39% of the crimes.

Recently, the federal government of the United States was a victim of vendor fraud. The Department of Veterans Affairs (VA) and the Government Emergency Management Agency (FEMA) gave over $38 million in federal contracts to a vendor that promised to be able to provide healthcare providers with a cache of N95 masks.

Personal protective equipment was in low supply during the coronavirus epidemic. As a result, the two agencies jumped at the opportunity to get the masks (while skipping the most thorough screening processes ).

Unfortunately, the VA and FEMA were affected due to the verification shortcuts. The inexperienced vendor lied. He didn’t have any masks and had no intention of making any.

Though the fraudulent vendor faces up to 35 years in federal prison for his actions, it didn’t help the two government agencies that required medical supplies.

Small enterprises, arguably more than bigger companies and organisations, need an efficient supplier verification procedure. Small firms often lack many of the resources that larger businesses have. As a result, it may be more difficult to recover when a small firm falls victim to a vendor fraud scheme.

Regulatory Compliance

Another reason your business should verify its suppliers is to comply with regulatory laws. Depending on where your business is based and the products or services it develops and sells, you may be required to follow various types of supplier verification requirements.

Many businesses in the United States and Europe, for example, are obligated by law to complete the following verification processes when dealing with outside suppliers:

  1. Combating the Financing of Terrorism (CFT)
  2. Anti-Money Laundering (AML)
  3. Know Your Business (KYB)
  4. Know Your Customer (KYC)

Suppose your company fails to comply with regulatory requirements while onboarding suppliers, it may face serious implications. If a lack of due diligence allows a criminal to commit fraud, your organisation may be punished, shut down, or even accused as an accomplice in financial crimes.

Consider the instance of Standard Chartered. When it failed to comply with anti-money laundering laws, the British bank was fined $1.1 billion by authorities in the United States and the United Kingdom.

Reliable Supplier Relations

Spending the time to verify the suppliers with whom you engage can also assist your business in developing solid supplier relationships. Why are good supplier relationships important? Long-term partnerships with trustworthy and loyal suppliers can provide your business with a variety of advantages, including:

  1. Cost savings
  2. quality control
  3. A more quick and effective supply chain
  4. When problems develop, the capacity to identify mutually beneficial solutions is impaired.
  5. Less frustration for your staff

Reduced Risk  

A partnership with several suppliers is required for many small businesses. On the other hand, doing so exposes you to dangers that are, for the most part, outside your ability to avoid or mitigate.

When your business enters into a contract with a third party, it must assume several financial risks in addition to the fraudulent and regulatory issues discussed before. Your whole supply chain could become unstable with an unreliable supplier. These measures, however, might assist you in increasing revenues and getting an edge over your competition if you take the time to ensure that you are dealing with a reliable supplier.

Brand Protection

Last but not least, an efficient method of supplier verification can assist in safeguarding the reputation you’ve worked so persistently to build up. When every link in your supply chain functions as it should, from the first mile to the last mile, it can speed up the delivery of high-quality goods to your customers. And when a business goes out of its way to provide a positive experience for its customers, it has the potential to build a loyal customer base that will return to make more purchases.

On the other hand, issues with the supply chain might make it difficult for your organisation to accomplish its work effectively. What may begin as an issue with an unreliable supplier can snowball into one that inhibits production, causes delays in order fulfilment and delivery, irritates customers, and drives your staff to frustration. All of these difficulties may negatively impact the image of your business, and it can be difficult to find solutions to problems such as these.


We hope you completely understand “why do companies have to verify their suppliers?” It is not uncommon for the owner or manager of a small business to feel overwhelmed. Your available time has a limit. You often find yourself being tugged in various ways all at once. However, you shouldn’t consider verifying your suppliers to be just another task you have to do. You should consider the time you invest in finding and verifying potential suppliers as a sensible investment that has the potential to pay off in the long term.

In addition to our standard background verification services, Integritas also offer customized solutions to meet the specific needs of our clients. We understand that every organization has different requirements, and we are committed to providing the highest level of service possible. Our company also offers different services like Identity Verification, Reference Verification, Global Database Check, Employment Verification Address Verification to make sure that you are getting the best possible deal.

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