How to Screen a Counterparty Before a Transaction

As of early 2026, the List of High-Risk VAT Payers includes 12,600 companies, and in 2025, more than 250,000 sole proprietorships ceased operations —a record high over the past five years. Entering into an agreement with an unreliable counterparty carries the risk of financial losses and problems with the tax authorities. Here’s how to vet a counterparty before signing a contract: a step-by-step guide, tools, and red flags.

Who is a counterparty?

A counterparty is a legal term referring to any party to a contract. Whenever you sign a contract—whether for the supply of goods, the performance of work, or the lease of premises—there is a counterparty on the other side of the agreement. This term encompasses a supplier of raw materials, a buyer of products, a contractor, and a landlord. A counterparty can be either a legal entity (LLC, sole proprietorship, joint-stock company) or an individual entrepreneur.

The company’s counterparties play different roles depending on the nature of the transaction:

• Suppliers — provide your business with goods, materials, or services;
• customers — who buy your products in bulk or at retail;
• Contractors — perform work under a contract: construction, IT development, logistics;
• Landlords — provide premises, equipment, or vehicles for rent.

Each of these roles involves your business’s dependence on the other party’s decisions. A supplier who fails to deliver raw materials will halt your production. A buyer who fails to pay for shipped goods will create a cash flow gap. A fly-by-night contractor will leave the project unfinished and disappear with the advance payment. That’s why the focus of due diligence varies: for a supplier, it’s financial stability; for a buyer, it’s payment discipline; and for a contractor, it’s experience and legal history.

The mere fact of registration in the Unified State Register does not guarantee a partner’s integrity or financial stability. In 2025, Ukraine lost more than 11,000 legal entities—some of which disappeared along with their unfulfilled obligations to partners. Therefore, it is essential to vet a counterparty before signing a contract, not after the first problems arise.

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How to Check a Counterparty: A Step-by-Step Guide

In Case No. 809/430/17, the Supreme Court established the obligation of businesses to exercise “due diligence” when selecting a partner. Assessing a counterparty’s risk profile is not a voluntary option but an expectation on the part of the State Tax Service and the courts. If a deal with a problematic partner leads to a dispute, the lack of due diligence will be used as an argument against your business. To avoid this, follow these seven steps—from basic registration to business reputation:

1. Check the registration in the Unified State Register. Go to the Unified State Register website and enter the company name or EDRPOU code. Note the status: “registered” or “in the process of dissolution.” Check the types of activities (KVED) — they must correspond to the subject matter of your contract. Look at the registration date, the list of founders, and the name of the director.
2. Check the tax status. Visit the State Tax Service website to find out whether the counterparty is an active VAT payer and whether they are registered under the single tax system. Separately, check whether they are on the List of High-Risk Taxpayers—as of early 2026, there were 12,600 such taxpayers. Entering into a transaction with a high-risk taxpayer puts your tax credit at risk.
3. Review the company’s legal history. Search for cases in the Unified Register of Court Decisions by company name or EDRPOU code. Assess the nature of the lawsuits. Commercial cases indicate conflicts with partners, tax cases indicate problems with the State Tax Service, and labor cases indicate violations of employees’ rights. Several active cases at the same time are a sign of systemic problems within the company.
4. Check for debts and enforcement proceedings. The Unified Register of Debtors will show any outstanding obligations, while the ASVP will show any open enforcement proceedings. If a counterparty ignores a court ruling, it is unlikely to fulfill its obligations to you either.
5. Review the sanctions lists. The National Security and Defense Council’s State Register of Sanctions is a mandatory step in the verification process, especially if your counterparty is involved in import or export activities. Doing business with a sanctioned company poses a risk not only of financial losses but also of legal consequences for your business. Check both the company itself and its ultimate beneficial owners—sanctions apply to related parties as well.
6. Assess the financial condition. If the counterparty is a legal entity, its annual financial statements are available in public sources. Analyze revenue trends over the past two to three years, the presence of losses, and the ratio of assets to liabilities. A consistently unprofitable company poses a risk of contract default. Also pay attention to sharp spikes. If a company tripled its revenue in a single year for no apparent reason, this is a sign of shell companies.
7. Research the company’s business reputation. Look for mentions of the company in the media, reviews from other business partners, and its participation in tenders through ProZorro. A company with a transparent history in public procurement is usually more reliable than one that operates “behind the scenes.”

Indicators of Counterparty Risk

During the vetting process, certain red flags require special attention. The Diya.Business portal identifies seven signs of an unscrupulous partner—we’ve adapted them to the realities of B2B transactions:

• recently registered—the company has been in business for less than a year and has not yet established a financial history;
• a bulk registration address—dozens of companies listed at a single address indicate a formal registration without any actual business activity;
• Frequent changes in management or founders—three or more changes in a year—indicate corporate conflict or an attempt to avoid liability;
• lack of financial statements — the company is either hiding problems or not actually conducting business;
• Pressure to sign quickly — a reliable partner understands the need for due diligence and doesn’t rush the decision;
• Pending court cases and enforcement proceedings—systemic legal issues are rarely limited to a single counterparty;
• Registration in temporarily occupied territories—in addition to security risks, this creates an additional tax burden: 18% personal income tax + 1.5% military levy.

One red flag is a reason to conduct a more thorough review. Two or three at the same time are a serious reason to reconsider the decision to proceed with the deal.

Tools and registries for verification

Each step of the algorithm is based on a specific source of information. Some of the tools are free, while others require a subscription.

Free registries cover basic needs: company status, debts, and court cases. Paid aggregators save time—instead of visiting six to eight websites, you get a consolidated report in a minute. YouControl, for example, analyzes a counterparty based on 28+ risk factors and generates a PDF dossier.

In addition to due diligence, the transaction format itself reduces risks. When a supplier offers a buyer the option to pay in installments through eDilo, the supplier receives the full amount immediately, while the buyer pays in stages. This approach protects both parties: the seller doesn’t have to wait for payment, and the buyer spreads out the financial burden. This format is particularly useful for initial transactions with a new counterparty, when trust has not yet been established.

See also: How to Attract Investment for Small and Medium-Sized Businesses in Ukraine

Advantages and Disadvantages of Counterparty Due Diligence

Due diligence takes time and effort—but it pays off the very first time you avoid a problem. For example, if you shipped goods worth 500 thousand hryvnias on deferred payment terms, and the counterparty initiated liquidation a month later, without a preliminary check you wouldn’t even have known that they were already in the process of closing down. Five minutes in the Unified State Register would have saved you half a million. In 2025, 48,800 criminal cases involved fraud—some of which arose precisely because of unscrupulous counterparties.

Financial losses are only part of the risk. The State Tax Service analyzes supply chains and tracks links between companies. If your business partner is included on the List of High-Risk VAT Payers, the tax authority will audit you as well—triggering a “chain reaction.” In 2026, the State Tax Service has scheduled 4,558 audits, and high-risk business partners are one of the main triggers for including a business in the audit plan. And if you have documented the audit, this works in your favor in court: The Grand Chamber of the Supreme Court, in its ruling dated July 7, 2022, explicitly stated that businesses must take steps to verify their partners. The report detailing the results serves as evidence of your good faith.

The main drawback is time. Manually checking six to eight government registries takes two to four hours per counterparty. For a business that enters into dozens of contracts every month, this places a significant burden on the team. Paid aggregators reduce the time to just minutes, but require a subscription budget. Another challenge is the incompleteness of open data: sole proprietors are not required to publish financial statements, so it is more difficult to assess their financial health. Additionally, the registries reflect the situation with a delay: a court decision appears in the Unified State Register of Court Decisions (USRCD) several days after it is issued, and changes to the Unified State Register (USR) appear only after they are entered by the registrar.

Despite these challenges, due diligence is an investment that protects against much greater costs. To vet a business partner before a major deal, choose tools that add financial security to the contract.