5 ways to avoid supplier rip-offs

For some entrepreneurs to be let down by unscrupulous suppliers is a rite of passage, but let’s call it what it is: a rip-off that should have never happened. Here are Christie Whitehill’s five tips to avoiding supplier disappointments.

Unfortunately, being ripped off and let down by suppliers is not unusual. For example, in my role as a mentor to tech-based start-ups, I hear plenty of examples of developers going AWOL before a site is live, software suppliers overpromising and not providing timely support, and contractors not meeting deadlines.

In addition to wasting time and money, these bad suppliers can be business killers because we often rely on them at crucial times in our ventures. Here’s are five steps to take to avoid being let down by a supplier.

Do your research

You already know this. Most people do. But it’s easy to get involved with suppliers who can talk the talk, especially if have any urgency about what you need.

Before you sign them up, create a checklist. Think of it like the 100 points of ID the bank wants to see before you open an account, but for your business. If the supplier doesn’t convincingly meet the criteria, then you need to say no.

Questions to ask:

Who have you worked with before? (Are their previous/current clients comparable to your business?) Can I contact them for feedback?
What kind of work have you done before? (Is it similar to what you want them to do?)
Can you show me some examples of previous work? (Can they actually finish the job, see a project through?)
How do you like projects to run? (Their answer will give you a feel for whether they’d be a good fit for you.)

Also, be open and upfront about your expectations. Good suppliers are happy to have a transparent working relationship.

Get client references

Word-of-mouth is the best endorsement, so if you’re looking for someone to fulfil a need, ask for referrals from friends who have used suppliers before.

Ask the supplier for references. Testimonials are a good start but often don’t give you the depth you need to understand their working relationships, and they can also be manufactured. So ask to speak to clients so you can understand how they have worked with others.

If you have time, start them on a small test project so you understand how they work.

Draw up a detailed contract

Hate to sound like a lawyer, but you need a detailed contract to cover all the bases of your working relationship – including safe guards to ensure timely delivery of promised deliverables.

A lot of business relationships break down after the initial spark fades. A contract is a clear indication of what’s expected of both parties. Remember, a working relationship is a two-way street and respect for one another’s work styles needs to be accounted for too

Pay in milestones

It is not unusual for suppliers to ask for an upfront payment as many have been burnt by non-paying clients before. It’s a bit of a risk to pay in full upfront, so negotiate milestone payments, which also supports the supplier as they deliver.

You can include an exit clause in your contract where if you’re not satisfied with the work you can terminate the relationship or ask for changes within the scope of each milestone payment.

Pay the last bill on completion

My golden rule: Don’t pay the final bill until you have seen the completed work. It’s too easy for a supplier to drag their feet or skip off if you need changes, so this rule allows for control around the final product after you have done quality assurance.

The best foundation for businesses and suppliers revolves around both sides setting clear expectations. Being transparent about what’s happening with a job and opening the lines of communication is essential to maintain a fair and sustainable relationship. If a supplier can’t offer that, beware.

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