Identity verification has always been an essential component of business. Today’s companies have also been pushed by globalisation and the advancement of web technology to become more reliant on a network of mutual trust when building their business relationships—whether with wholesale suppliers, customers, or partners.
Because of this, it has become even more crucial that companies run checks to verify the identities of those whom they wish to do business with; not only to protect their companies, but also to ensure they are compliant with anti-terrorism and anti-laundering regulations.
And as processes evolve, so do the risks. Modern criminals have gotten smarter in developing various fraudulent schemes that aim to collect personal information and aid in identity or monetary theft.
The situation is exacerbated by how easy it is to register a company - the only thing you need to do is pay a fee and enter your registration information at a government agency.
Furthermore, due to the growth of e-commerce business (and the current pandemic), relationships are now created and evolved online, and not face-to-face. The reliance on digital interaction makes it easy for criminals to instantaneously target several enterprises as in-person verification (e.g. on-site visits) has now become impractical.
When you unknowingly choose a partner (such as a wholesale supplier) that is engaged in illegal activity, not only do you risk substantial financial loss, but you could also end up harming your reputation. No one wants their business associated with a criminal organization.
So, what can you do to ensure that your supplier is legitimate and exactly who they say they are? What steps can you take to verify their business?
We’ve prepared some tips to help you do just that.
Ask for Registration Paperwork
The first thing you can do is ask your supplier to provide you with any documents that contain proof that their business is registered and recognized as legitimate. This may include an emailed copy of a certificate of incorporation, a tax number, or a business ID number.
You can then take this paperwork and verify its accuracy using your local database of corporations to confirm if the business exists and if it's still in operation. We also suggest that you thoroughly review documents of this nature for signs of forgery.
When authenticating paperwork, keep in mind that many illegitimate companies will provide fake addresses and phone numbers. So, instead of checking their company websites to see if the information matches, it's better to verify that information with a local authority. Here are some websites that you can use to confirm the accuracy of a supplier’s data, by country:
- India: Ministry of Corporate Affairs
- US / Canada: Better Business Bureau
- Australia: ABN Lookup
- UK: Company House
- EU: European Union's Taxation and Customs Site
Review Their Website
Thanks to technological advancements, modern companies have access to multiple solutions (e.g. WordPress templates) that make it extremely easy to create a website, regardless of skill level or budget size. These solutions have made it possible for everyone to have a website that you can use to verify vital company information, such as phone number and address.
So, we know a company website might not be the most reliable way to verify information, as the website's creator can easily input false details to match the data they gave you. But it can still prove useful.
By simply inputting the website on whois, you can see who registered the website and when the registration expires. If this information does not match with the information given to you by the supplier, it’s a clear red flag. In such cases, we recommend that you ask the supplier to provide an explanation to ascertain their credibility.
Assess Their Payment Terms
A supplier's payment terms are one of the most crucial indicators of the company’s legitimacy. Beware of companies that ask you to pay the full amount upfront. With physical goods, you should typically only pay 30% upfront, and the remaining balance once the product has been assessed for quality and approved for shipping. This type of payment is known as a
Letter of Credit Payment and is most prevalent with large orders. Companies not accepting Letter of Credit payments but instead preferring untraceable payments, such as Paypal, can be a red flag.
Finally, be cautious of suppliers who ask you to escrow money through their lawyers or an unknown or unreputable escrow company. There is a good chance that these individuals are part of a fraudulent group. In the case you wish to use an escrow service to complete payments, it should be a reputable company that both parties choose.
Ask for Customer Referrals
If the supplier is a legitimate and established business, they should be able to provide you with references from previous customers. Ask for phone numbers, a company name, and a contact person, and make sure to give them a call so you can get their feedback directly. However, it is a good idea to first do some research to confirm that they are a legitimate business before calling them for a referral.
We also suggest that you ask for references from customers from the same country as you, as they will be able to give you feedback that will apply directly to you. But if there aren't any, international references will work, too.
Ask If They Have a Local Office
The question is most relevant to large, established suppliers, who often set up local branches in multiple major trading centers so they can operate more smoothly within that country.
If they do have a local office, it is more likely that they are a legal business; not to mention you will be able to visit their office and conduct an inspection in-person. However, keep in mind that the absence of local representation does not mean that they are an illegitimate business.
Request their Credit Report
Another way to verify that a supplier is a dependable business is to hire a credit report service, as it will give you invaluable information about the company. This can include credit history, financial performance, the company's legal history (if applicable), contact details, years of operation, credit score, and the management structure. If you use a reputable agency, a credit report is a highly credible and trustworthy source of information since it is based on data that will have been verified against, or provided directly from, official sources.
As we can see from above, there are plenty of ways to verify the identities of business partners. However, the most efficient method is simply to hire a trusted business information provider such as Cedar Rose.
Established in 1997, Cedar Rose has over 20 years of experience in helping companies to mitigate the risk that comes with working with new business partners. We help our clients make informed decisions based on facts by offering a wide range of flexible solutions that include credit analysis, compliance, AML, and KYC solutions.