Trust or not: how to check the reliability of a counterparty?

A counterparty is generally understood as any of the parties to a transaction. A counterparty can be not only an individual but also a legal entity. Every company that works with counterparties before starting cooperation can check their reliability and make sure of their honest intentions. Such measures are taken to ensure that the business does not suffer from dishonest counterparties who are unable to pay or are involved in fraudulent scams. The measure may seem exaggerated, but it is a great way to get rid of unnecessary risks, which are already enough for every company.

Why check potential counterparties?

In recent years, the government's tendency to improve the transparency of market relations has become increasingly evident. Laws are being formulated to facilitate transparent transactions, activities are underway to identify "one-day firms" and fight fraudsters, and government officials are also finding and punishing companies operating under the guise of state-owned ones. But additional security does not hurt.

In addition, cooperation with fraudsters negatively affects the reputation of the company. No one wants to do business with a company that has been found guilty of such cases. Therefore, it is better to check potential counterparties in order to maintain the reputation of an honest company. Of course, you shouldn't "sniff" them out from the get-go, but still, it won't hurt to check them out, even if this counterparty was recommended by business partners or friends. Clarifying information about the counterparty's solvency and obtaining information about its activities and cooperation with fraudsters will never be superfluous.

A list of the most common types of fraudulent activity:

• misuse of prepayment
  
• a fictitious legal entity or individual entrepreneur
  
• use of the name, logo or brand of another company without its permission
  
• forged documentation or warranties
  
• repeated use of collateral funds
  
• intentional falsification of data on product demand
  
• non-targeted withdrawal from the territory of the state
  
• entering into an agreement by a person not authorized to do so.

Information you should know about your counterparties

Before conducting a full due diligence of a counterparty, you should carefully study the information about it. If at least one detail in them makes you doubt the partner's reliability and honesty, you should definitely perform a full check. But you can start with the following.

1. Find out about the owner of the counterparty company. Finding out the name of the owner will not be difficult, as it will surely be in the public domain. After you find the name, check the number of companies owned by this person. It may well be that several companies participating in the tender are owned by this person. Next, find out if he or she has any criminal record, or if there are any cases related to fraudulent activities against him or her. Perhaps at least one of the companies has been in the news for fraud or is about to go bankrupt. In this case, it is better not to deal with this person.

2. Check whether the business is licensed or authorized to conduct the activity. Some types of activities do not require a license, but businesses engaged in the sale of alcoholic beverages or, for example, catering companies must obtain a license to do so. It is worth checking whether the counterparty company has a license, as well as the types of activities specified in its charter documents.

3. Next, you should check the date of the company's foundation. The longer a company has been on the market, the less likely it is to be unreliable. Of course, you shouldn't refuse to accept newcomers to the market for this reason alone, but if, for example, the organization's website says that the company has been operating for 15 years, but in fact it turns out that the company has opened only recently, you should check it carefully.

4. It is important to study the specified addresses of the organization. If the address is massive, then a full check of the potential partner will definitely not be superfluous. A mass address is considered to be an address where at least 10 organizations are registered. Also, fraudsters often register companies in ordinary apartments where it is not possible to conduct business. This is an important point that is definitely worth checking.

You can also check whether the company is bankrupt and is not in the process of liquidation, whether the owner of the organization has been removed from management positions, and whether the organization is under any prohibitions.

If the data found does not seem transparent, you should check the counterparty's TIN. At first glance, it may seem like a complicated procedure that requires a huge investment of time and effort, but in fact, it is a quick opportunity to get a lot of important information about a potential partner.

Checking the TIN of the counterparty

This is the easiest and most convenient way to extract comprehensive data about a potential partner. Every company registered in the tax register has an Individual Taxpayer Number. And given that every organization conducting business is obliged to register with the tax authority, there is no doubt that all the necessary information will be available in their database. The TIN of any organization must be publicly available, and any enterprise is obliged to submit its number at the request of not only a legal entity, but also an individual. And this number will help you find any necessary information about the company.
The most important data are information on tax payments, outstanding debts, and information on liquidation or reorganization. In addition, it is possible to obtain information about court proceedings in which the counterparty participated.

It is important to note that in case of fraudulent actions on the part of the counterparty, liability may also be imposed on companies that cooperate with an unreliable company. Therefore, it is important to protect yourself from fines, sanctions and other types of penalties provided for such partnership. The more information you collect, the more likely it is that the counterparty is acting honestly, and you will not have to regret the agreement later.

The tax service also does its best to ensure that entrepreneurs can obtain comprehensive information about each other and cooperate only with trustworthy organizations. It is not uncommon for business leaders to demand that their counterparties independently provide all documents confirming their integrity and honest intentions. For example, detailed data on tax payments or copies of licenses, copies of statutory documents or reports for the previous year can also be requested. This step can save time, as the counterparty will provide all the information itself, and there will be no need to search for it. Most often, business leaders take this step because they understand that their partner does not want to fall victim to a scam and respect their foresight.

A counterparty that provides all the information is likely to be an honest and stable partner. If he refuses to provide the necessary information, you can assume that he is hiding something and refuse to cooperate. But the success of cooperation between companies depends on reliability, so this should not be neglected.
Checking counterparties is a mandatory step for every entrepreneur. Such a measure will help to maintain the reputation of an honest company, avoid fines and other penalties related to counterparty violations, and maximize business efficiency.