Your vendor has undergone a risk assessment. You align on partnership and your goals. Should be easy to sign them, right?
Well, not so fast. Before you sign, it’s important to go through the process of due diligence to ensure that your vendors can provide exactly what you need while staying in compliance.
What is due diligence?
Put simply, vendor due diligence is the primary method to ensure a vendor’s authenticity. Breaking this down even further, there are two types of due diligence your organization should be practicing on a regular basis:
- Initial due diligence — As it sounds, this is when you first meet with a vendor and verify that they’ll meet your needs prior to an engagement. This initial discussion should help identify risk and determine if the vendor would be a good partner for your organization and if they meet your strategic and financial standards.
- Ongoing due diligence — Continuous monitoring should be top of mind when you work and build a relationship with a third-party organization. You should continuously monitor and analyze your vendors, even if they have already been contracted. The frequency of analysis can be dependent on the risk level of the vendor.
You should always perform due diligence in advance of executing a contract with any vendor. Continuous monitoring can be performed by implementing financial health and cyber risk monitoring tools that can send you alerts based on any negative indecent or trend that can lead to a change in risk.
Why do you need due diligence?
Due diligence shouldn’t be treated as optional when you are starting a partnership with a new client. In many cases, it’s one of the most critical activities in third-party risk management. Your vendors won’t always be open to airing out their “dirty laundry,” and preventing risk for you and your customers is key in building trust.
Additionally, due diligence can be a solid strategic move for your company. For example, going through the due diligence process may help you realize that there is actually a better vendor for you out there. You want the best partnership for you and your vendors, so eliminating a partnership early when it’s proving to be unfruitful is a way to save time for everyone.
Benefits across the board
Knowing exactly who you’re working with is only one piece of the pie. Vendor due diligence can help both you and your vendors when creating a new relationship.
Assistance in negotiations
When you first enter a conversation with a potential vendor partner, there are many benefits of working through due diligence. For example, if you complete a vendor ranking audit, and the vendor ranks higher on the scale than you initially thought, that can assist you to negotiate a lower price, or gain related benefits that can offset any potential added risk.
Stay in compliance
By regularly performing due diligence audits and analyses, you’ll have stronger control over your knowledge of risks. Due diligence is the primary process by which you can assure that your vendor’s claims are authentic and that they stay in compliance. It’s better to have a full understanding of any risks than take a claim at face value and have a risk take you by surprise.
Create the right expectations
Throughout the course of your vendor relationship, it’s possible that you may see or experience vendor practices that don’t align with your company’s values. Due diligence helps you establish expectations you have from your vendors before a partnership is created, as well as identify any unforeseen possibilities to mitigate or eliminate risk.
Quick wins with strong compliance
While the frequency of due diligence analysis relies mainly on the vendor and their rate of risk, you should be performing this often to ensure compliance. If you fall out of compliance, your company’s rate of legal or cyber risk skyrockets.
Laika can help. With our thorough risk assessment, fast certifications, and automated workflow audits, we strive to make staying within compliance as easy as possible. Speak to a member of our team today to learn more or request your demo.