Vendor Due Diligence

Vendor Due Diligence: Vendor due diligence, or counterparty due diligence, is the verification a lender or anchor runs on a supplier, dealer or buyer before extending credit to or through it. It checks GST registration and filings, MCA company records, litigation and insolvency, commercial bureau data and bank statements, then sets an exposure limit and keeps monitoring the counterparty for change.

Why Vendor Due Diligence matters in credit and collections

• Core checks: GSTIN status and filing regularity on the GST portal, company or LLP master data and charges on the MCA portal, litigation and insolvency searches, commercial bureau report and rank, and bank statements for actual cash flow.
• In invoice and supply-chain finance the risk often sits with the buyer rather than the borrowing vendor, so buyer credit limits are set on the counterparty that ultimately pays.
• Due diligence is not a one-time onboarding step: GST filing gaps, MCA status changes, new charges and fresh litigation can appear at any point in the relationship.
• Findings feed the credit underwriting file and the limit sheet, and the same registry data later supports collections and legal recovery if the counterparty defaults.

What is checked and how limits are set

The registry layer comes first because it is fast and hard to fake. On the GST portal the lender confirms that the GSTIN is active, the legal and trade names match the application, the principal place of business is consistent with CPV, and returns have been filed regularly rather than in bursts. On the MCA portal it pulls company or LLP master data — incorporation date, status, registered office, directors and their DINs, and the index of charges, which shows which assets are already pledged to other lenders. A company marked as struck off, under liquidation or with a long gap in annual filings is a stop, not a deviation.

Litigation and insolvency searches follow: court records for recovery suits and cheque-bounce cases, NCLT and IBBI records for insolvency proceedings against the entity or its directors. The commercial bureau report and rank show how the counterparty has repaid other lenders, and bank statements — ideally through Account Aggregator — show whether the turnover visible in GST returns actually arrives as money. Each source answers a different question, and the value lies in the contradictions between them.

In supply-chain and invoice finance the paying party is often the buyer, not the vendor who borrows. Lenders therefore set a buyer credit limit: the maximum outstanding they will finance against invoices drawn on a given buyer, sized on the buyer's own financial strength, payment history to its suppliers and concentration in the portfolio. Vendor limits and buyer limits are tracked separately, and a single weak buyer can constrain financing across many vendors.

How lenders run counterparty diligence well

• Automate registry pulls — GST, MCA, litigation, bureau — so diligence on low-ticket vendors is cheap enough to do on every file.
• Set buyer limits on the party that ultimately pays, and monitor concentration across the whole vendor programme.
• Reconcile GST turnover with bank credits; registry data proves existence, cash flow proves activity.
• Re-run checks on a schedule and on triggers: missed GST filings, a new charge, a director change or a fresh legal case should reach the credit team within days.
• Store the diligence record against the counterparty so collections and legal teams can act on it if the account turns delinquent.

Vendor Due Diligence — frequently asked questions