Supplier Red Flags: What to Look Out For

Going into a retail business for yourself means taking risks with your money and your future. Not only do you have to worry about finding customers and keeping positive cash flow, you have to keep a steady supply of merchandise. This means finding a reliable supplier or distributor. But with just as many fraudulent or overpriced suppliers as there are legitimate distributors, committing to a supplier can be a scary thing.

Good business sense can help you avoid many of the scams out there, but there is no way to avoid them all. Fortunately, a scammer's charade is never impervious. By using the following tips, you can avoid everything but a skim across the surface of a bad business experience.

Just because it looks like a duck and sounds like a duck...There are many companies out there who claim to be wholesale distributors, when in fact they are drop shippers who buy their products from wholesalers and mark them up before selling them to you. This not only costs you money at the purchase, it costs you future profit potential, since you will have to raise the price of the product yourself to make any kind of profit. One thing you can do is to take note of the variety of products a supplier sells. Distributors that sell many different items rather than specializing in certain products might just be drop shippers.

Some things in life are still free...If you're just starting to work with a distributor, they may require a small set-up fee or a minimum purchase to get started. However, this is the exception, not the rule. If a distributor tries to charge a subscription fee, add-on fees or per-item fees, ask them to explain the charges and plan to move on to another company.

No name, no number, no service...A legitimate business isn't afraid to attach its name and contact information to its web pages, so if the supplier you're looking at doesn't have a contact number and address, tread carefully. Anyone can invent an email address and start a website, and you should be able to gather enough information from a supplier's website to do the proper background research on them. When you do order product, your supplier should ask for your tax ID number.

Let your fingers do the walking--um, typing...In today's information age, legitimate companies are easy to find. Even start-up companies will have a trace of information somewhere online. The Better Business Bureau maintains information on thousands of companies, and their website is easy to use. Whois.net is a great place to research a business website. Just by typing in the domain name, WhoIs will tell you if the site is registered under a company or an individual. If you see a person's name as the registrant, you might be dealing with a middleman.

Sales Pitch 101: Your supplier shouldn't be trying to sell you products. If you visit a distributor's website and it includes a sales pitch, you're probably dealing with a middleman. That isn't to say that distributors won't have any kind of marketing on their site, but they don't have a need for aggressive sales techniques. On the same note, your supplier shouldn't be trying to sell you other services. At the very least, this indicates that he or she is a dabbler and might not be around long.

Hello, Smith residence...If you really want to find out the legitimacy of a potential supplier, call their business number. If someone answers the phone with a simple "hello," hang up. Although many acceptable businesses are run from a home office, there should still be some kind of indication that it is a place of business. While not all companies can afford a receptionist, they will at least answer the phone with the name of their company.

If all else fails, contact the manufacturers of the products that you plan to sell and ask them who their authorized distributors are. They may suggest some strategies for selling and point you in the direction of their best suppliers.