How to Quickly Assess a New Supplier’s Financial Health

Reframing the boardroom question

“Can we onboard this supplier fast and be sure they’re financially sound?”

It’s a common question in fast-moving procurement environments. The tension is real: the ops team wants that new supplier up and running yesterday to meet a looming deadline, while the risk lead hesitates. “Have we done our due diligence?” That pause – that friction – is where a lot of delays, misunderstandings, and sometimes poor decisions begin.

The assumption is that financial due diligence must be slow. Spreadsheets, statements, analysis. But for me, assessing financial health quickly isn’t about skipping steps – it’s about knowing what matters and applying a focused lens. The truth is, most risk comes from a few core weaknesses, not the absence of a 50-page report. A concise, structured triage process can often tell you what you need to know in less than an hour.

The challenge is clarity. Procurement teams collect plenty of data but often lack a repeatable method to interpret it. Without that, early warnings get buried.

The Three-Lens Approach: Defining financial health

Over time, you’ll find that three lenses are enough to get a clear, practical view of a supplier’s financial standing: Liquidity, Borrowing, and Forecast. These lenses aren’t complicated – but they work. They shift the focus from data collection to decision-making.

Liquidity: Can they stay afloat day-to-day?

Liquidity is all about short-term survival. Does this supplier have the cash or working capital to meet obligations as they come due? You can start with the current ratio to understand how stretched a supplier’s short-term finances might be. Just as important is understanding what’s driving that number – whether it’s delayed receivables, tight working capital, or poor cash conversion. But it’s not just ratios. You’ll want to check whether they generated positive operating cash flow last year. That offers a glimpse into how real their margins are.

Here’s why this matters: Companies with healthy revenue can still go bust if their cash dries up. Maybe they overextended on receivables. Maybe they front-loaded costs. If liquidity is weak, a single late payment from one of their own customers could trigger a cascade. For procurement, that’s a hidden failure risk.

Borrowing: Are they carrying too much risk?

This lens looks deeper into long-term resilience. Debt-to-equity is a starting point, but context matters. Is the debt short-term or long-term? Is it secured or floating? What’s the interest coverage ratio telling us – in other words, how easily can the company meet its interest payments using its earnings? A company might look fine until you realise it has £3m in debt maturing next quarter and a strained covenant.

The concern isn’t just the presence of debt – it’s the fragility that comes with it.

If you see big gaps between gross and net assets, or equity that’s been eroding over time, it’s a signal to prepare for potential instability. It doesn’t mean you walk away, but it means you prepare.

Financial Outlook: Which direction are they heading?

A supplier might look solid today, but what does the trendline say? Are revenues flatlining? Are margins tightening year on year? Is the order book thinning?

Financial Outlook is sometimes the easiest to overlook and the most predictive. When you review annual accounts, look for retained earnings. Are they building reserves or burning through them? Are they building reserves, or burning through them? Check profit consistency – not just the headline, but what’s behind it. An uptick driven by one-off asset sales tells a different story than one driven by operational growth.

Three years of consistent decline is a big red flag. So is sudden volatility with no obvious explanation. Even if current liquidity and borrowing are fine, a negative trajectory can signal risk hiding just over the horizon. This is where external context helps. Press mentions, industry headwinds, or regulatory changes that might explain the shift.

The 30-Minute Triage

Here’s the workflow I recommend. Start with a 5-minute data pull – Companies House filings, an independent credit report, any alerts or known adverse events. Platforms like our Company Watch platform make this easy. A quick assembly of public data can get you going.

Once you’ve done this, spend 15 minutes applying the three lenses:

• Liquidity: current ratio, quick ratio, recent cash flow, working capital position.
• Borrowings: debt structure, interest coverage, upcoming maturities, balance sheet stress.
• Financial Outlook: multi-year trends, retained earnings, revenue and margin direction.

Next, spend 5 minutes checking qualitative flags. Scan for adverse flags such as winding-up petitions, CCJs or failures by association, supply chain failures, suspected fraud or bad press. On the Company Watch platform, we have this information loaded up and ready to go once you search up a supplier’s name. This early-stage scrutiny is not forensic, but it’s fast, and it catches issues that numbers don’t.

Finally, assign a risk grade to determine further action. A simple Pass, Refer, Fail allocation can determine whether to proceed, investigate/escalate or reject. Document the rationale. It helps now, and it builds internal consistency over time.

When judgment meets the tech

I always stress: automation should support human judgment, not replace it. The tech helps identify anomalies, but it’s the experienced analyst who knows what’s material and what’s just noise.

Sometimes, a flagged supplier is safer than it looks – for example, a subsidiary of a strong parent. Sometimes, the opposite is true.

My final thoughts

Due diligence doesn’t end at onboarding. For suppliers with a yellow or red risk profile, contract terms should reflect that. Shorter payment cycles. Performance clauses. Update triggers.

And then there’s monitoring. Even a strong supplier today can weaken tomorrow. Alerts for changes in credit scores, new filings, or negative news help you stay ahead. Quarterly reassessments bring discipline. They turn triage into an ongoing practice.

Financial health isn’t static. By embedding these checks into your supplier management rhythm, you shift from reacting to anticipating. That’s where resilience lives.

Finally, I’d like to re-iterate that this process is not about slowing down procurement. It’s about giving procurement the confidence to move fast when it’s safe and to pause when it’s not. Done right, a quick financial assessment becomes a decision tool, not a checkbox. And that’s how you stay ahead.