Time Makes All the Difference: Why and How to Check a Counterparty, Part I/II

Yevgenii Ivakha

Time Makes All the Difference: Why and How to Check a Counterparty

“All life is risk management, not risk exclusion.” These words belong to an outstanding man – Walter Riston, one of the most influential bankers in the world, the former head of the large international financial conglomerate “Citicorp”. And speaking of risks in this way, he understood what he was talking about. In business it is impossible to protect yourself from all sides on an ongoing basis. Self-employment requires daily decision-making, cooperation with dozens and sometimes hundreds of customers, partners, investors. And this is not always a predictable story. To risk and go forward to reach your goal in business is necessary, but it should be done not blindly, but being thoroughly prepared and having covered the rear. Otherwise in the excitement you can lose everything – capital and reputation. And life examples are the proof of that.

While deciding on cooperation with any counterparty, it is logical that the first and one of the main criteria for business representatives in general is the legal status of a company. They check whether the company is not in the process of termination, whether the bankruptcy procedure concerning it is not initiated. However it is not so easy to learn that in time. For example, there were cases when YouControl (analytical system for business intelligence and check of Ukrainian contractors) showed that the company was bankrupt. And when the same company was checked in the Unified State Register (USR), it was indicated there that the company operated normally. That occured because not everybody knows that in some cases information on bankruptcy first appears on the website of the Supreme Economic Court of Ukraine (SECU), from which the system also collects information, and then, in the course of time, this information appears in the USR.

I remember an example when a company was held hostage to the confusion with registers because of the lack of knowledge where and what to check. An employee of the company, who had to check the legal status and other features of the counterparty’s activity, in view of the large amount of work and lack of time, checked information only in the USR. It indicated that the enterprise was “not in the process of termination”, although in fact this was no longer the case. The company delivered goods to the buyer on the condition of a deferred payment and only in some time found out that there was no one to settle accounts. Its counterparty was already bankrupt at the time of delivery. It became a bitter experience for the company, because of which it lost a couple of hundreds of thousands UAH, but, as a result, it worked on the mistakes and realized how important it was to carefully approach the issue of counterparties verification.

But the experience can be the opposite. Imagine that you have been working with a client for years, you have trust-based relations and nothing forebodes of troubles, that is, it makes no sense to check it every day. The other day you have scheduled the next delivery of goods to the regular customer, as in the case above – with a deferred payment. Nothing seems to interfere in this chain of events. But in fact the company with which you have already established cooperation has become bankrupt, and the relevant documents are already in the registers. But we remember that checking does not occur before each deal, and the client did not intend to notify you about their new “status”. And in such case tools that allow you to automatically monitor counterparties are useful for your enterprise to receive notifications of important changes in the counterparties’ activity in time. And in my practice there was an example when information received in time and in such a way saved a company from the loss of both goods and money.

These are just two examples of how risks and losses can be avoided with the help of information received and processed in time. In business, before starting any cooperation, it is necessary to carefully feel out the situation on many fronts. One option is to make sure that your potential partner is not under  sanctions. After all, if s/he turns out to be, for example, on the list of the United States Department of State, the road to this country will be closed to your company. Cooperation with “offshore” firms can also tarnish your reputation a bit. And sometimes it happens that a bubble company, with which you have started cooperating out of negligence, after its disclosure, will drag you into a reputational pit too. Thus vigilance cannot be lost and checking third parties in a way discussed in this Blog or otherwise is very crucial. Otherwise sooner or later a miss at the cost of hundreds or even millions UAH can be the last one for your company.

Yevgenii is a business development expert in a famous Ukrainian company which provides online services for business intelligence and check of Ukrainian contractors. He helps businesses to find solutions how to reduce economic and reputational risks.

Yevgenii has broad experience in sales and management applying both Ukrainian and international methods. He conducts searches of strategic partners, handles business development, executes agreements, runs projects, and handles human resources. Yevgenii is an experienced negotiator having hundreds of top-level successful negotiations in his portfolio.

Yevgenii has graduated from Foreign economic activity department of Institute of Municipal Management.