How to create a supplier checklist

Our helpful supplier checklist can help you make an informed choice when it comes to choosing a supplier.

If your business relies heavily on a particular supplier, be sure to assess several potential suppliers to pick the most reliable one.

Even a basic checklist can save headaches caused by a problem supplier later on.

1. Check the supplier's capacity

Is the potential supplier able to fulfil your order requirements, and on what timescale?

Ask about their ability to scale capacity should you increase your order volume and how much notice is required.

Having a flexible supply capacity lets your small business respond to market changes.

2. Conduct financial due diligence

Choose a supplier in good financial health - a strong balance sheet, cash reserves, and a consistent financial performance are all good indicators.

Look at company accounts and annual reports or using a service such as DueDil is a cheap way to check a supplier's health.

3. Check supplier credentials

A supplier that invests in its workforce, customers and products is a good bet.

Look for clues such as certification and accreditation to business organisations, or obtaining ISO standards or investor in people awards.

Check how responsive the sales teams are, and how quickly they respond to questions.

4. Look for customer recommendations

Ask the supplier for references, particularly businesses that are similar in size or age to your business.

Ask the referees who they would recommend as suppliers - and ask about their experience with previous suppliers to understand which suppliers should be avoided.

5. Check supplier communication

Working with a supplier is like any relationship - good communication matters and helps avoid costly problems.

When things go wrong, having a responsive supplier that communicates what's happening is vital.

Check how a supplier will communicate in the event of a problem.

6. Agree a service level agreement

For some suppliers, it's worth getting terms agreed for how the relationship will work.

This can cover what will happen if deliveries are late or the goods and service are below an agreed standard.

The supplier will also expect the same from you - usually around order timing, payment and processes for changing capacity or delivery schedules.

Good suppliers will be willing to discuss a service level agreement.

7. Supplier back-up plan

Even good suppliers can struggle, especially in a tough market.

Make sure you have a plan B in case a supplier can't fulfil an order or goes into administration.

Understand what supplier failure would mean for your company, and establish how long you could continue to operate until you found an alternative supplier.

Ask the potential supplier what contingency plans it has in case it can't deliver - some suppliers have agreements with other, similar suppliers who can step in when there's a problem.

8. Conduct financial planning

Share your business growth plan with potential suppliers, and negotiate any discounts - such as cheaper pricing for bulk orders - before you sign up to them as a supplier.

When signing, agree how long the contract will last, and on what basis you can terminate the contract such as late or missed deliveries.

Ensure pricing reviews are included so you're not locked into an expensive contract if a more competitive supplier becomes available at a later date.