Vendor analysis

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Vendor analysis
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Vendor analysis - this is an assessment of the strengths and weaknesses of the current suppliers of the entrepreneur. During this process, the supplier's personnel, their business model, financial capacity to realize a given type of sales, assortment, reputation or terms of delivery and payment are analyzed. Undertaken by each entrepreneur before he or she starts cooperation with a new entity. This is important because the target company is likely to enter into a longer cooperation with him/her and will have to trust him/her in the supply context (which is crucial for entrepreneurs). In addition, vendor analysis is a phenomenon that provides valuable information on current market prices and enables the imposition of an appropriate margin or cost surcharge on the sale of goods in the wholesale or retail trade.

Methods of conducting vendors analysis

Carrying out vendors analysis is often a tedious process. It can take up to more than a month to deliver the right documents to the potential buyer. A reliable buyer should try to obtain, among other things, the following information [1].

  • Monthly stock levels of the supplier;
  • The transport possibilities and the rules on which the transport of the ordered goods will be carried out;
  • The financial capacity to acquire such goods (to ensure that the goods do not originate from, for example, a criminal offence).

In view of the above, a large part of the collaboration may already be completed at this stage. Very often, potential suppliers do not want to disclose information about themselves, hiding at the same time the secret of the company and the business secret. Nevertheless, in a normal economic process, it is natural to control potential contractors. This is due to the fact that the persons concerned will be partly interdependent (supply chain buyer, outlet market supplier). Therefore, it should be in the interest not only of the buyer but also of the supplier to control the contractor.

Vendor analysis in virtue of tax law

Special attention should be paid to vendor analysis in the context of the application of tax law. In accordance with the current regulations aimed at counteracting VAT fraud or artificially reducing the tax base, Member States of the European Union introduced regulations obliging all professional taxpayers (performing economic activity) to verify their contractors in terms of form and business [2]

A fragment of the business analysis is described in the previous section. However, formal verification, which is limited to the obligation to obtain the following documents from a potential contractor, is also important:

  • Register documentation for business purposes or VAT settlements;
  • Documents confirming the lack of tax arrears (e. g. a certificate confirming the given legal status);
  • Checking whether a given entity fulfils other obligations (e. g. submitting financial statements on time) imposed on it by separate provisions of law.

Failure to comply with the above actions may sometimes result in joint and several liability of a taxpayer making a transaction with a criminal entity. This is due to the fact that vendors analysis is now mandatory for tax purposes [3].


  1. Jagannath, S., Kavyashree N., Niranjanamurthy M., Merode G. G., Vos L., Wagner C., (2013) p.2360-2370
  2. Fedeli S., Forte F. (2011) p.211-226
  3. Ainsworth, R. T., Othman R., (2012) p.1-10


Author: Weronika Czarna