How to check a supplier's solvency before paying a deposit

In short: a deposit paid to a supplier who then does not deliver does not disappear: it becomes a debt to recover. And if the supplier is insolvent, that debt joins the queue with all the other creditors, often without security. Checking solvency before paying costs one check; recovering a deposit from a bankrupt supplier costs a legal action with an uncertain outcome.

What really happens if the supplier does not deliver

If a supplier collects a deposit and then does not deliver, you have the right to a refund of the sum or, depending on the contract, to compensation for damages (art. 1453 of the Civil Code, termination for breach). The problem is not the right itself, but its practical enforceability: if the supplier has meanwhile become insolvent, that right turns into a claim to be asserted in any insolvency proceedings, where creditors without real security (unsecured creditors) are paid last, often only partially. Prevention, by checking before paying, is always worth more than acting afterwards.

What to check before paying the deposit

• Financial strength: net equity and share capital from the filed financial statements, with the date. Net equity eroded by more than 1/3 of share capital (art. 2446 of the Civil Code) or negative is a signal that often precedes precisely the difficulties in honouring commitments.
• Beneficial owner: who actually controls the supplier, also useful for understanding whether the same person has other businesses that could absorb resources in a moment of strain.
• Protests and ongoing insolvency proceedings: public events that, together with other signals, indicate liquidity strain already underway.
• Payment behaviour towards other suppliers: a company that systematically pays its own suppliers late has less margin to handle an unexpected event that would also delay your delivery.

Deposit or confirmatory deposit: the difference that matters if something goes wrong

The two terms are often used as synonyms, but legally they are not. A deposit (acconto) is an advance payment on the agreed price: if the contract is terminated for the supplier's breach, it must be fully refunded, plus any compensation for damages proven. A confirmatory deposit (caparra confirmatoria) (art. 1385 of the Civil Code) has a specific function instead: if the party that received the deposit (the supplier) is in breach, the other party may withdraw from the contract and claim double the deposit paid, without having to prove the damage suffered. Specifying in the contract which of the two you are paying, rather than taking it for granted from the word "acconto" used verbally, concretely changes your protections in case of breach.

Beyond the check: how to reduce exposure on the deposit

Even after a positive check, some contractual precautions further reduce the risk: a bank or insurance guarantee securing the deposit paid (common in supplies of significant value), payment staggered by production milestones instead of a single deposit, or a first order of limited value before committing to larger volumes with the same supplier.