Suppliers are essential partners in your business operations. They provide the goods and services that allow your company to serve customers and maintain a steady stream of revenue. However, supply chains can sometimes be disrupted by logistical challenges. Because these setbacks can directly affect your operations, it's critical to work with suppliers who are committed to delivering quality products on time and meeting agreed-upon terms and standards.
To ensure these expectations are met, it’s important to evaluate potential risks before signing a contract. Doing this helps you identify issues in advance, such as delivery delays, product defects, or payment complications, ensuring your business can operate efficiently and maintain strong professional relationships.
Here are six ways to effectively assess supplier risk and make informed decisions before entering a contract.
1. Determine If They Can Deliver Consistently
A supplier’s reliability and capacity are essential for uninterrupted operations. So, before committing to a partnership with any supplier, evaluate their production capabilities, workforce, equipment, and logistical systems. Some key questions to ask include: Can they handle peak demand? Do they have contingency plans for delays or emergencies?
Also, examine their inventory management and operational history. Suppliers who maintain adequate stock and track orders efficiently are less likely to run into supply chain problems.
2. Establish Clear Financial Expectations
When entering a contract with a supplier, you need to remember that financial interactions are a two-way street. While you expect suppliers to fulfill orders, they also rely on timely payments from your business. The best way to prevent misunderstandings is by setting clear, mutually agreed-upon payment terms.
This involves discussing invoicing schedules, late payment policies, and potential incentives for early settlement. It’s also best to agree on a payment method to ensure that transactions are processed accurately and on time.
Maya Business offers solutions designed to simplify supplier payments for businesses of all sizes. For example, opening a Maya Business Deposit account provides access to a fund disbursement tool that allows you to pay multiple suppliers in a single bulk transaction. This streamlines payments, reduces the risk of delays, and helps maintain strong, professional relationships with your suppliers.
Moreover, Maya Business Deposit earns an interest of 2.5% p.a., which is between 20 to 25 times higher than what traditional banks offer on average. This means that your business funds continue to grow further while you keep the money in your business banking account.
3. Verify That They Comply with Local Laws and Regulations
A supplier who adheres to legal and regulatory requirements protects your business from unnecessary risk. Verify their registration with the Department of Trade and Industry (DTI) for sole proprietorships or the Securities and Exchange Commission (SEC) for corporations and partnerships. You should also confirm whether the supplier is a legitimate, registered business by checking that their BIR Certificate of Registration (COR) is conspicuously displayed at their place of business and that they issue BIR-authorized official receipts or invoices for transactions.
If your industry has specific standards, such as environmental, labor, or safety requirements, ensure the supplier follows them diligently. Compliant suppliers reduce the risk of legal penalties and safeguard your reputation.
4. Evaluate External Risk Exposure
Geography and external factors can influence your supply chain. Consider natural risks such as typhoons, floods, earthquakes, or other local hazards that may affect production or transportation. Assess infrastructure and accessibility challenges, including road conditions, port reliability, and transport connectivity.
It’s also beneficial to plan for contingencies by identifying alternate suppliers or establishing flexible delivery arrangements. When you look into these external risks, it ensures that your supply chain remains resilient, even in the face of disruptions beyond the supplier’s operational control.
5. Confirm Their Reputation and Credibility
A supplier’s credibility often predicts their reliability and professionalism. That said, research online reviews, client testimonials, and industry references to find out their reputation.
You can also reach out to current or past clients to assess their delivery performance, production quality, and responsiveness. In the Philippine market, where word of mouth and networking are highly influential, partnering with a credible supplier provides confidence that they will uphold your business standards.
6. Clarify Their Responsibilities for the Goods and Services They Provide
Before signing a contract, clearly define what the supplier is responsible for, including delivery timelines, product specifications, and quality standards. Importantly, make sure to establish policies for returns, replacements, or exchanges if goods are damaged, defective, or fail to meet agreed standards.
Specify how damages will be reported, the time frame for replacements, and who covers the shipping or handling costs. Clear documentation reduces misunderstandings, ensures accountability, and protects your business from financial loss.
Manage Supplier Risk with Maya Business Solutions
Part of managing supplier risk is ensuring you and the supplier understand financial expectations. This may include agreeing on an invoicing and payment schedule and simplifying fund disbursements. Fortunately, signing up for Maya Business can help you with these.
Setting up a Maya Business account lets you open a Maya Business Deposit account and use it as your settlement account. As mentioned previously, Maya Business Deposit offers an industry-leading 2.5% p.a. interest rate. This means you’ll earn PHP 25,000 in interest per year on a PHP 1 million deposit. Furthermore, you’ll be able to send money to your suppliers for free via InstaPay and PESONet, letting you save more.
Signing up also qualifies you for a no-collateral Maya Flexi Loan offer of up to PHP 2 million in just 3 months, allowing you to have another funding source to further develop your business and ensure operations run smoothly. Just use Maya as your primary processor for all wallet and card payments. The more you use our solutions, the better the loan offer will be.
What are you waiting for? Sign up for Maya Business today to enjoy the benefits of Maya Business solutions.
