Supplier due diligence: a checklist for vetting a UK company

Taking on a new supplier means taking on a dependency; if they fail mid-contract, the problem lands on you, often at the worst possible moment. Supplier due diligence is how you check the company before you commit and decide whether a company is financially stable enough to rely on. The good news is that most of what you need is on the public record at Companies House, free to read, and this guide sets out the checks worth running as a simple checklist.

Due diligence on a supplier is not the same as a credit check, and it does not need to be complicated. You are answering one question: is this company sound enough that I can depend on it? A handful of readings from its filed accounts and its Companies House record will tell you most of what you need, and you can work through them in the order below.

The supplier due diligence checklist

Run through these checks on any UK company as a way to vet a new supplier. Each one is a straight question with a yes or no answer, drawn from the Companies House accounts.

• Is the company solvent? Do its net assets show it owns more than it owes?
• Can it cover the year ahead? Is the current ratio above 1, so short-term resources cover short-term bills?
• Is the safety margin healthy, rather than the business being financed almost entirely by debt?
• Does it file on time? A pattern of late or overdue filings is a warning sign.
• Is it actively trading, with no strike off notice or insolvency proceedings against it?
• Are the directors stable and free of disqualifications or a trail of dissolved companies?
• Is it moving the right way? Compare the last two years of accounts for the direction of travel.

How to work through the checks

The financial checks come first because they carry the most weight. Net assets tell you whether the company is solvent at all: a positive figure means it owns more than it owes, a negative one means the reverse and is a serious warning. The current ratio tells you whether it can meet its bills over the next year, with anything below 1 a concern. Together these two readings carry most of a judgement about whether a supplier is financially stable.

The filing and status checks come next. A company that files late, or has stopped filing, is often a company in difficulty, and a strike off notice or insolvency proceeding is a clear signal to stop and reconsider. The director check confirms the picture: stable leadership with no disqualifications is reassuring, though it is a supporting signal rather than a decisive one.

Finally, read two years rather than one. A single set of accounts is a snapshot, but two show trends. A supplier moving the wrong way is worth watching even if this year’s figures still look acceptable.

What the checklist cannot tell you quickly

The checklist is straightforward, but running it well across every supplier takes time, and doing it consistently is harder than doing it once. Most small UK companies file under the small companies exemption, so there is no profit figure on the public record, which throws people who expect to find one. The stability signals are on the balance sheet regardless, but knowing where to look, and reading the same way every time, is the part that turns a checklist into a reliable process rather than a one-off effort.

A supplier that looks fine on the surface can be in trouble underneath, and the trouble is almost always visible in the accounts before it is visible anywhere else.

Reading a company’s filed accounts and turning them into a clear answer is exactly what CompanyIQ does. Run a supplier, and it reads the latest accounts, scores the financial health, checks the directors, and surfaces the warning signs, so you can work through the whole checklist in one step rather than by hand. If you vet suppliers and would rather have the public record read for you, run your first check at company-iq.co.uk.

You can also see more on the underlying method in our guide to how to check if a company is financially stable, and start a check from the company check page.