How to Approve a New Supplier: A Practical Guide
The supplier approval checklist is the gate between “we like this vendor” and “they’re in our system.” It verifies that a supplier is legitimate, capable of delivering what you need, and an acceptable risk to do business with, before you commit, not after something goes wrong. Skipping it feels efficient until the unvetted supplier misses a critical deadline or turns out to be a shell company.
This guide walks through how to use the Supplier Approval Checklist so that every new supplier enters your business properly checked, with the decision and its reasons on record.
When to Use This
Run the checklist before onboarding any new supplier, approval comes first, onboarding second. The depth should match the risk: a stationery supplier and a sole-source manufacturer of a critical component do not need the same level of scrutiny, and pretending they do means the important checks get rushed because the trivial ones ate the time.
Re-run the checks periodically for critical suppliers, not just at entry. Companies change: ownership, financial health, and capacity all move over time. A supplier that was solid three years ago may not be solid now. Also re-verify if a supplier’s circumstances change, acquisition, major expansion, or persistent performance problems are all triggers.
Record rejections as well as approvals, with reasons. A rejected supplier who reappears six months later through a different requester should meet their own history, not a blank slate.
How to Fill It Out
Section 1: Supplier identity. Legal name, registration number, registered address, years in business, and ownership structure. Verify the registration against the official business register where one exists, don’t take the supplier’s word for their own legitimacy. Note anything unusual: very recently incorporated companies, opaque ownership, or addresses that don’t match the business being described.
Section 2: Financial checks. Proportionate to the spend and the risk: a basic credit check for significant contracts, reviewed financial statements for strategic suppliers. You’re asking one question, can this company survive the contract? A supplier in financial distress may cut corners, miss deliveries, or collapse mid-contract, and the cheapest bid sometimes comes from the company most likely to do so.
Section 3: Capability and capacity. Can they actually do the work? Relevant experience, current client base, production or service capacity versus what you’re asking for, and key personnel. A supplier taking on a contract three times their normal size is a risk whatever their price. This section should also confirm they can scale if your volumes grow.
Section 4: References, actually contacted. Collect two or three references and then call them. Reference collection without reference checking is theatre. Ask specific questions: did they deliver on time, how did they handle problems, would you use them again? Write down what was said and who said it. A supplier unwilling to provide references is providing information too.
Section 5: Compliance and risk. Current insurance coverage, relevant certifications for your industry, and screening for sanctions, ethical, or conflict-of-interest concerns where relevant. Keep this proportionate, a cleaning contractor doesn’t need the compliance pack of a defence subcontractor, but don’t skip it entirely for anyone handling your data, your premises, or your money.
Section 6: Risk rating and decision. Pull it together: approved, approved with conditions, or rejected, with reasons written down. Conditions might include a trial period, capped initial order values, or a re-check in six months. The decision needs a name and a date. An approval nobody signed is an approval nobody owns.
Common Mistakes
1. Collecting references but never calling them. The checklist says “references obtained” and everyone moves on. Unchecked references are decoration. The phone call takes fifteen minutes and is the single highest-value step on the checklist, past clients will tell you things no document will.
2. Approving on price before doing the diligence. The quote is attractive, the need is urgent, and the checks get “done later”, which means never. Do the checks before the commercial decision hardens, because once a supplier is the chosen one, every check becomes something to explain away rather than something to act on.
3. No recorded reasons for rejection. A supplier is rejected, nobody writes down why, and a year later a different manager starts the process again from scratch, or worse, approves them. Rejection reasons protect the business and are only fair to the supplier if they’re factual.
4. One-size-fits-all depth. Applying the full checklist to a low-risk, low-spend supplier wastes everyone’s time and teaches people the process is bureaucracy; applying a light touch to a critical supplier is negligence. Tier the checklist explicitly: light, standard, and enhanced, with clear rules for which tier applies.
Who Needs to Sign Off
Procurement completes the checks and drafts the recommendation. Finance reviews the financial section for significant spends. Final approval follows your spend thresholds, procurement manager for routine suppliers, department head or director for strategic or high-value ones. As a control, the person who found and proposed the supplier should not be the sole approver: separation between proposing and approving is what keeps the process honest.
How Often to Review and Update
New suppliers go through the checklist once, before onboarding. Re-verify critical suppliers on a cycle, annually is the common standard, and trigger a re-check on material changes like acquisition or financial warning signs. Review the checklist template itself yearly with procurement and finance: are the tiers still right, are the checks catching real problems, and is anything on the list pure ritual that could be dropped?
Download the free Supplier Approval Checklist template.
Disclaimer: this guide is general business information, not legal or financial advice. Due-diligence requirements vary by industry and jurisdiction, adapt the checks to your risk profile and get professional advice for high-value or regulated contracts.