By  Yatish Kuril, Ph.D.
Founder & Director, Finvigil Insights Private Limited

In Indian business culture, relationships matter. Trust matters. References matter. A long-known intermediary, a former colleague, a community connection, a family introduction, or a familiar industry face often becomes the basis for onboarding a supplier, vendor, distributor, customer, or strategic client. That may help open doors. It should never replace due diligence.

This is where many corporates go wrong.

They assume that because the counterparty is “known,” the risk is low. They believe that because the promoter speaks confidently, the company is credible. They think that because someone has been introduced by a trusted person, credit checks, legal checks, payment discipline analysis, beneficial ownership verification, litigation review, GST hygiene, and financial stress testing can be deferred. In reality, that is precisely how risk enters the system—quietly, socially, and often with apparent legitimacy.

The modern Indian business environment has become far more complex. Payment cycles are stretched, supply chains are geopolitically exposed, digital fraud is more sophisticated, shell structures are harder to identify through surface-level checks, and regulators are moving toward deeper transparency and governance expectations. The Reserve Bank of India’s KYC framework explicitly emphasizes ongoing due diligence, not just one-time onboarding, and risk-based monitoring has become central to financial relationships.

The old model of “we know the person, so we know the business” is no longer sufficient.

A deeper warning sign is visible in the wider credit environment. India’s insolvency ecosystem remains active and heavily burdened. The Ministry of Finance reported that, up to September 2025, 8,659 corporate insolvency resolution processes had been admitted, with resolution plans approved in 1,300 cases and aggregate creditor realizations of about ₹3.99 lakh crore. That is not just a legal statistic; it is a business signal. It means counterparties can deteriorate faster than relationship-based comfort allows management teams to recognize.

At the same time, payment stress remains a structural issue. The MSME Samadhaan portal continues to show thousands of delayed-payment cases and large amounts under dispute, while broader MSME payment studies in late 2025 still described delayed payments as one of India’s major structural business problems. This matters because every supplier, vendor, and client relationship ultimately converts into cash-flow risk. A company may think it is onboarding a “good customer”; in practice, it may be onboarding a receivables problem.

Recent trends reinforce the point. Atradius reported in 2025 that in India more than 70% of B2B invoices were overdue, with settlements typically arriving more than a month late, while average payment terms were nearing 60 days in some segments. In March 2026, the RBI extended enhanced export-credit relief to June 30, 2026 and allowed a longer realization period for export proceeds because geopolitical disruptions were pressuring repayment cycles and trade flows. When macro conditions weaken payment behavior, relationship-based onboarding becomes even more dangerous.

Where companies make the mistake

The first mistake is confusing familiarity with fitness. A known promoter may still run a weak balance sheet. A referred vendor may still have hidden litigation, compliance breaches, poor banking conduct, stretched creditors, or unstable cash generation.

The second mistake is treating onboarding as an administrative event rather than a risk decision. Many firms collect a PAN, GST number, cancelled cheque, and incorporation certificate and consider the file complete. But documentation is not due diligence. Due diligence asks harder questions: Who really owns the entity? What is its repayment behavior? Are statutory dues regular? Are auditor remarks a concern? Is revenue quality credible? Is working capital dependent on delayed creditor payments? Has the company faced insolvency, fraud allegations, blacklisting, or market-regulator attention?

The third mistake is giving unsecured trade credit because of personal comfort. This is especially common when onboarding distributors, channel partners, logistics clients, procurement vendors, or family-business counterparties. Credit is extended first; verification is postponed. When stress emerges, the seller discovers too late that the relationship was real, but the repayment capacity was weak.

The fourth mistake is failing to perform ongoing monitoring. Risk is not static. RBI guidance itself stresses “ongoing due diligence” and periodic updating based on risk categorization. The same logic applies in the corporate world: a party that was safe twelve months ago may no longer be safe today.

Examples from the Indian context

India has repeatedly shown that surface credibility is not enough.

The Gensol Engineering episode became a sharp reminder that lenders, investors, and counterparties can be exposed when governance signals are missed or trusted too easily. Reuters reported in 2025 that credit downgrades and complaints by lenders raised concerns around liquidity, corporate governance, and alleged falsification of documents. The lesson extends beyond capital markets: if corporate documents, disclosures, or promoter assurances are accepted without rigorous verification, counterparties can inherit losses, delays, and reputational damage.

Another example comes from operating systems and customer controls. In April 2026, reports stated that BPCL had alleged fraud linked to its fleet-card and digital-payment ecosystem, with a nationwide figure of about ₹129.55 crore under investigation. Even where the relationship begins inside a branded system, weaknesses in verification, monitoring, or exception control can create large exposures. The reputational trust attached to a system is not a substitute for transaction-level risk control.

Public procurement examples also show the danger of weak vendor scrutiny. Fraud concerns in healthcare procurement and medical-supply chains have led institutions to tighten vendor access and verification processes, while state procurement bodies have taken blacklisting action in supplier-fraud cases. The sector changes, but the pattern remains the same: weak onboarding discipline becomes expensive later.

Why the problem is getting worse now

The issue is no longer limited to traditional trade credit. It now sits at the intersection of governance, digital identity, payments, compliance, and supply-chain resilience.

First, remote and digital onboarding have increased speed but also increased impersonation and documentation risks. RBI’s framework recognizes non-face-to-face customers and requires stronger controls in such cases. In the broader corporate ecosystem, the equivalent risk is onboarding partners based only on scanned documents, email trails, and introductions.

Second, regulators are moving toward deeper transparency. SEBI’s 2025 circular on minimum information for related-party transaction approvals reflects a broader market expectation: governance decisions must be supported by adequate information, not merely by proximity or influence.

Third, procurement fraud is receiving much more attention. EY notes that procurement fraud often involves higher-priced contracts, collusion, and hidden benefits to internal decision-makers, which means the vendor file can look normal while the economics are distorted.

Fourth, payment stress and supply-chain disruptions mean that even honest counterparties can become risky counterparties. The relationship may be genuine; the cash flow may still be broken.

What corporates should do instead

From the perspective of Finvigil Insights Private Limited, the answer is straightforward: trust may open the file, but risk intelligence must decide the onboarding.

1. Separate commercial enthusiasm from credit approval

Sales teams, founders, procurement heads, and relationship managers should not have unilateral power to onboard high-exposure counterparties. Every material supplier, vendor, and credit client should pass through an independent risk screen.

2. Build a minimum onboarding due-diligence stack

Before onboarding, companies should verify:

• legal existence and current status
• beneficial ownership and control layers
• financial statements and auditor observations
• GST hygiene and filing behavior
• litigation, insolvency, and adverse media
• banking and payment discipline indicators
• related-party exposure and governance red flags
• reference checks beyond the referrer

3. Distinguish vendor risk from client credit risk

A supplier can create continuity, fraud, quality, compliance, and reputation risk. A client can create receivables, concentration, and bad-debt risk. The onboarding model should be different for each.

4. Use graded credit limits, not emotional credit limits

No client should receive open-ended credit because “the promoter is known.” Initial exposure should be capped, reviewed, and increased only after demonstrated payment behavior.

5. Re-underwrite periodically

A one-time onboarding check is inadequate. High-risk or high-exposure parties should be reviewed quarterly or semi-annually. In a volatile environment, static files become dangerous files.

6. Link onboarding to action triggers

If a counterparty shows deteriorating filings, delayed payments, rating downgrades, rising litigation, resigned auditors, governance controversies, or abnormal transaction patterns, the system should automatically trigger tighter terms, reduced limits, advance payment requirements, or fresh approval.

7. Make due diligence board-visible

Large exposures should not sit buried in procurement or sales folders. Boards and CXOs need visibility on top counterparties by exposure, risk score, overdue position, and exception status.

Recommendations in the voice of Yatish Kuril’s business philosophy

A relationship is a business asset, but it is not a credit instrument.

A reference is not repayment capacity. Familiarity is not governance. Good conversation is not balance-sheet strength. Strong branding is not beneficial-owner transparency. And a polite promoter is not a substitute for evidence.

Indian corporates must stop treating due diligence as distrust. Proper due diligence is not an insult to a relationship; it is protection for both sides. It creates clarity, seriousness, and sustainable commercial discipline.

At Finvigil Insights Private Limited, the practical recommendation is simple: every onboarding decision should answer five questions before exposure is created:

1. Who exactly are we dealing with?
2. Can they pay, not just promise?
3. What could go wrong operationally, legally, financially, or reputationally?
4. What early-warning signals will we monitor after onboarding?
5. What is our exit or containment plan if the relationship deteriorates?

If a company cannot answer these five questions, it is not onboarding a partner. It is onboarding uncertainty.

Conclusion

Many corporate failures do not begin with fraud discovery, insolvency filing, or payment default. They begin earlier—at the moment management chooses comfort over verification. In India’s current business environment, where overdue invoices remain widespread, insolvency processes remain significant, regulators expect deeper transparency, and trade conditions can shift quickly, relationship-led onboarding without structured due diligence is no longer merely old-fashioned. It is unsafe.

The disciplined company of the future will not abandon relationships. It will validate them.

That is the difference between goodwill and governance.
And in business, governance is what protects goodwill from becoming loss.