Good supply chain management is essential for small businesses. A failing supplier can slow down your business, inflate your costs and tarnish your reputation. Not to mention the stress and aggravation you’d rather just avoid. 

To avoid these pitfalls, you need to assess each supplier before you start working with them. This is where Know Your Supplier (KYS) comes in: a clear and effective method for choosing solid, reliable partners.

Faulty products, late delivery or failure to comply with standards can have major repercussions. A good KYS process can anticipate these risks and keep your operations running smoothly. 

This article guides you through setting up an effective KYS process to ensure your business partners are reliable, consistent, and an asset to your company overall.

What is Know Your Supplier (KYS)?

Know Your Supplier (KYS) is based on the same principle as Know Your Customer (KYC), widely used in the financial sector to check the identity and reliability of customers. Applied to suppliers, it lets you assess their financial health, their compliance with regulations, and their commitment to social and environmental responsibility. 

It’s an essential process to validate a new supplier relationship, particularly if you plan to continue it long term. And it's more than just an administrative check, it's a strategic tool for strengthening the resilience of your business.

Why is KYS important?

A good KYS process lets you:

• Reduce risks associated with unstable suppliers by identifying the warning signs of financial or organisational difficulties.

• Ensure regulatory compliance, by avoiding penalties and ensuring your partners meet legal and industry standards.

• Protect your brand image, by working with reliable partners who align with your values.

• Control costs, by reducing errors and contingencies linked to non-delivery or contractual disputes.
  
  
• Secure your supply chain, by anticipating failures and having viable alternatives.
  
  
• Optimize payment and invoice management, with a clear framework to limit disputes and ensure that transactions run smoothly.

The three-step Know Your Supplier process

Know Your Supplier is based on a three-stage methodology:

1. Identify suppliers

• Search for partners via industry platforms and directories (Alibaba, Global Sources, ThomasNet).
• Compare their reputations via databases such as EcoVadis or Dun & Bradstreet.
• Consult chambers of commerce and trade fairs to identify qualified contacts.

2. Conduct in-depth checks and audits

• Examine their solvency by analyzing financial statements and tax returns (if public).
• Check compliance with industry standards (ISO 9001, ISO 14001).
• Examine official databases (including BODACC and Infogreffe in Europe) to detect any disputes.

3. Manage and monitor contracts

• Define performance indicators (KPIs) to monitor the quality of services.
• Set up regular monitoring to anticipate risks.
• Guarantee a clear and rigorous contractual framework to protect the company.

How to identify a reliable supplier

Working with reliable and reputable suppliers helps ensure your own business runs smoothly. Here are some of the key points mentioned above, in more detail. 

1. Check their reputation

• Consult reviews and testimonials from existing customers.
• Analyze their online presence. Look for customer removes, industry certifications, references, and awards received.
• Talk to other companies who have worked with them.
• Look for warning signs: late payments, disputes, frequent changes in management.
• Compare them with competitors to identify differences in quality or reliability.
• Check specialized databases to ensure they haven’t been noted for fraudulent or failed transactions. 

2. Assess their financial health

• Consult financial statements on platforms such as the European Business Register (EBR).
• Analyze their payment history and level of debt.
• Check existing partnerships: working with solid customers is a good indicator.
• Assess the stability of their sales: high variability may indicate management difficulties.
• Watch out for late payments to their own suppliers, a sign of fragile cash flow.
• Look to see if the company has been involved in any recent commercial disputes.

3. Test the quality of products and services

• Ask for samples or an initial test.
• Check certifications (ISO 9001, ISO 14001, etc.).
• Carry out an on-site audit to observe processes.
• Set up regular quality control.
• Compare production standards with other suppliers to identify discrepancies.
• Observe product packaging and transport: faults in this area can lead to hidden costs.
• Ask for feedback from other regular customers.

4. Ensure regulatory compliance

• Check that your supplier complies with the legislation in force in your sector.
• Check their official certifications.
• Make sure they adopt responsible practices (working conditions, environmental impact).
• Identify any risks of legal sanctions that could impact your business.
• Ask about their internal anti-corruption and anti-money laundering policies.

5. Assess responsiveness and customer service

• How quickly can they respond to emergencies?
• Do they have a dedicated contact person?
• Do they offer an efficient after-sales service?
• Can they adapt to changes in demand or volume?
• What is their ability to deal with unforeseen circumstances? A responsive supplier limits business interruptions.
• Analyze their customer satisfaction rate and average response times.

6. Test their flexibility and capacity for innovation

• Can they adapt to changes in your business?
• Do they propose solutions to optimize your costs or lead times?
• Do they use modern technologies to improve flow management?
• Are they working on product/service innovations? An innovation-oriented supplier can be a growth driver for your company.
• Assess their ability to offer alternatives in the event of supply disruption.

Optimizing invoice management for better supplier relations

An effective invoice management system is essential for smooth transactions with suppliers. Poor payment management can lead to delivery delays and damage mutual trust.

It's recommended that you:

• Automate payments and invoice tracking using digital tools.
• Assess the supplier's solvency before accepting specific payment terms.
• Set up a dedicated supplier relationship management team to avoid disputes.

Legal obligations relating to KYS

The implementation of a KYS process is not only based on a desire for good management, but also responds to legal imperatives. In Europe, several regulations govern the relationship between companies and suppliers to prevent fraud, corruption and abuse in supply chains.

The French Sapin II law (2016) and the U.K. Bribery Act require large companies to implement a corruption risk prevention system, which includes an in-depth analysis of suppliers and business partners. In particular, this law requires them to:

• Map supplier risks according to their sector and location.
• Implement verification procedures before establishing business relationships.
• Introduce reporting mechanisms in the event of suspected irregularities.

The Duty of Vigilance Act in France goes even further, requiring large companies to monitor their entire supply chain to prevent human rights, working conditions and environmental abuses. 

The companies concerned must draw up a due diligence plan that includes:

• Identifying supplier-related risks.
• The implementation of appropriate preventive actions.
• A system for monitoring and evaluating the measures taken.

Failure to comply with these obligations may result in financial and legal penalties, as well as reputational damage that could affect their business. Adopting a KYS approach that complies with regulations helps to reduce these risks while strengthening transparency and responsibility in supplier relations.

Tools to facilitate KYS

KYS (Know Your Supplier) management is being modernized thanks to innovative tools that improve the verification and security of processes. 

• Digital identity wallets facilitate the secure exchange of information, while artificial intelligence and automation optimise data analysis and risk detection. 

• Access to public databases (Infogreffe, BODACC) and specialized platforms (EcoVadis, Dun & Bradstreet) enhances supplier risk management. 

• In addition, solutions such as SAP Ariba and Ivalua automate risk management, and electronic invoicing platforms streamline exchanges.
  
  
• As e-invoicing goes live in France and across Europe, B2B payments will have to go through official government channels. This ensures that parties and payments are legitimate, and provides a clear electronic trail. 

Combining these technologies with rigorous monitoring ensures a more reliable and efficient supply chain.

Conclusion

Know Your Supplier (KYS) is much more than just an administrative formality. It represents a strategic lever for guaranteeing supplier reliability, optimizing payment management and ensuring compliance with current regulations.

Thanks to rigorous selection and methodical monitoring, your company can limit risks and ensure the fluidity of its supply chain. By adopting best practice and using the right digital tools, you can secure your transactions and strengthen the long-term viability of your business.