Working with a new contractor often presents challenges and risks. Before deciding to enter into a business relationship, we usually try to check the credibility of a potential partner. In order to save time and costs, many entrepreneurs decide to do the verification themselves. Unfortunately, this is not always carried out in a reliable and comprehensive manner, which can lead to serious financial consequences. Limiting oneself to a cursory check of the data, relying only on what the KRS shows, or trusting the company’s official website completely is a common mistake. This method of verification can give a false sense of security. While the absence of negative entries in the KRS is certainly a positive signal, it is not a guarantee of the stability or reliability of the counterparty.
1. Checking only what is visible at first glance
A website, social media activity and a catchy listing presentation may make a good impression, but behind the attractive image may be a company with no real business or with financial problems. A fundamental mistake many people make is to rely on the data provided by a contractor. Sometimes a company appears on social media, but does not formally exist at all or its details are out of date.
2. Limiting oneself exclusively to the KRS
Another mistake that is quite common is to limit yourself to checking only the National Court Register. Checking the National Court Register is a good start when checking contractors, as it is a publicly available and official source of information. The problem is that by focusing solely on this one register, it is easy to overlook warning signs that are not reflected there.
3. Overlooking the financial situation
A common mistake made by those verifying contractors on their own is to omit analysis of financial statements, credit history and failure to check the entity’s presence in debtor registers. A company may be listed in several debtor databases, have bailiff seizures or pending enforcement proceedings. It is worth remembering that the financial statements available in the KRS can provide a great deal of valuable information about the condition of a company – not only the numbers, but also the context. For example, in the management reports accompanying the reports, it is often possible to find explanations of financial losses – such as the impact of the COVID-19 pandemic, the loss of a major customer, or internal problems such as the actions of a rogue board member. Therefore, it is worth approaching financial data with caution – a mere loss in a report does not necessarily mean that a company is unreliable. Different industries operate in different realities and figures without context can be misleading. The key is to understand why the financial situation looks the way it does.
4. No verification of the company’s business history
Business history is a valuable indication. It is worth paying attention to the dates of registration, frequency of changes in KRS entries, transformations, mergers and related entities. It is often a big mistake to focus only on the current KRS data without delving into the business history of the counterparty. It is worth checking whether the company has frequently changed its name or business profile, which in some situations may indicate instability or an attempt to hide reputational problems. Changes of headquarters every few months, multiple conversions can be a warning sign.
5. Unreflective trust in contact data
A common mistake is to uncritically accept a counterparty’s contact details as proof of their reliability. Out-of-date telephone numbers, unanswered emails or a company’s registered office in a so-called virtual office are not necessarily evidence of fraud, but certainly a signal that it is worth exercising caution. While the use of virtual addresses is not illegal and is sometimes practised by many honest businesses, it can also be used as a way of concealing identity or hindering possible investigations or claims. It is therefore worth taking a moment to check that the company is actually operating from the address provided and that telephone and email contact is efficient and responsive.
Summary
Vetting contractors is an important step towards a secure business, but only if it is done consciously, accurately and using the right sources. Vetting is a process that requires a comprehensive approach. In a world where data can be easily manipulated and fraudulent practices are becoming increasingly sophisticated, good vetting is a cornerstone of security and business wellbeing. Sometimes it only takes one inconspicuous detail to avoid big trouble, so it is worth using additional sources of information, such as financial statements, feedback from other customers or business intelligence reports, to get a complete picture of a counterparty’s situation.
Author: Junior Analyst Nikola Trzcińska
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