Supplier Due Diligence Explained: Risks, Rules, and Real Solutions

Team Svenry
Jul 2
2 min read

At Svenry, we work with finance and procurement teams that need more than just efficient workflows, they need reliable partnerships and that starts with proper supplier due diligence. Whether you are onboarding new vendors or reviewing existing ones, supplier due diligence is essential for managing risk, maintaining compliance, and building a resilient supply chain.

What Is Supplier Due Diligence?

Supplier due diligence is the process of evaluating a supplier’s legitimacy, financial health, ethical practices, and regulatory compliance before entering a business relationship. It involves collecting and verifying key information such as:

Business registration documents
Tax identification numbers
Bank account ownership
Financial records
ESG policies and human rights disclosures
Sanctions or legal issues

These checks help businesses make informed decisions and avoid working with fraudulent, unstable, or non-compliant suppliers.

Why Supplier Due Diligence Is Critical

Failing to properly vet suppliers can expose your company to a range of risks:

1. Fraud and Payment Scams

Impersonators and fake entities are increasingly targeting procurement teams. Verifying supplier identities and bank details can help avoid costly invoice fraud and unauthorized payments. Learn more in our article on invoice fraud detection.

2. Reputational Risk

If a supplier is involved in unethical labor practices, environmental violations, or corruption, your brand could suffer by association. Supplier checks can reveal red flags before you commit.

3. Regulatory Compliance

Many jurisdictions require businesses to perform due diligence under laws like the EU Corporate Sustainability Due Diligence Directive (CSDDD) or UK Bribery Act. Failing to comply can result in fines and legal consequences.

4. Supply Chain Stability

Understanding a supplier’s financial position helps ensure continuity. Late deliveries or sudden insolvencies can halt operations and affect revenue.

What a Strong Due Diligence Process Looks Like

An effective supplier due diligence process includes:

Document collection: Request official documents and declarations
Verification: Cross-check business and financial data with trusted sources
Risk screening: Search for red flags such as sanctions, insolvency, or legal disputes
Ongoing monitoring: Keep track of any changes in status or compliance over time

To verify VAT numbers in Europe, for example, companies can use the EU VIES validation tool. For global legal entity checks, the GLEIF database is a trusted resource.

How Svenry Simplifies Supplier Due Diligence

At Svenry, we automate the verification process so your team can onboard suppliers with confidence. Our AI reads supplier documents from your ERP system, checks them against official registries, and flags issues like: