Outsourcing services through an experienced third-party vendor allows companies to reduce costs, improve the quality of services, and accelerate the delivery of a product or service. It also increases financial and operational efficiencies and allows businesses to focus on their core business functions.
But, in outsourcing core functions to derive savings and efficiencies, companies are exposing themselves to high-profile risks like never before. According to Deloitte, the third-party risk is becoming a major challenge. That’s why organizations need to verify third-party vendors before working with them.
Vendor verification ensures that organizations work with vendors who are in good standing. Additionally, the verification process is necessary for organizations that are keen on fraud mitigation.
Here is how to verify a third-party vendor.
Due diligence is essential when you are sourcing for a third-party vendor. There is no universal standard of due diligence. However, certain pieces of information that all organizations need to have before deciding whether or not to work with a vendor. They include:
You need to know all the basic details about the vendor you want to work with. This way, you can ensure that the vendor is legitimate and licensed to provide the services that you need.
Some of the basic details you need to know include:
Your vendor must be financially solvent. Additionally, they should be paying taxes. You should have access to your potential vendor’s tax records, assets, liabilities, balance sheets, and compensation structure. These details come in handy in fraud mitigation.
Your vendor’s reputation can easily become your reputation. Therefore, you should confirm whether the vendor’s name is on any watch list, including those published by regulators. In addition, research on the vendor’s litigation history, negative reviews, and reports from agencies like the CFPB.
Artificial Intelligence (AI) powered media screening can help organizations transform a large amount of data into information that would give them a strategic advantage over other organizations.
Intelligence screening gives organizations comprehensive knowledge of vendors and therefore safeguards them against any risks. Intelligence screening also reveals critical risks in real-time by detecting information that may not be available on websites accessible by everyone. In addition, organizations can access negative social media comments about vendors and make informed decisions on whether or not they should work with a particular vendor.
After accessing reliable and comprehensive information on your potential vendors, you should identify the risks that come with working with them. This way, you can make informed decisions and choose a vendor that will suit your needs.
Here are a few risks that organizations face when working with third-party vendors.
Choosing the wrong vendor can hurt your business revenue. This is because the third-party vendor could disrupt your supply chain. For instance, if the vendor supplies a faulty component, the company will make fewer sales and consequently fail to meet revenue goals.
You cannot quantify reputational risk, but a mistake by a third-party vendor may hurt your brand and customers. While sourcing for a third-party vendor that will deal with customer-focused products pay close attention to their interaction with customers.
If a third-party vendor violates certain rules, laws, regulations, or internal policies, the principal organization may be liable for the vendor’s actions. Consequently, the organization or company will incur expenses when paying fines.
Mistakes by third-party vendors may make organizations or companies incur losses as a result of disrupted business operations.
To keep the risks discussed above in check, organizations need to provide proper oversight. This way, there will be no exposure to financial loss, reputational damage, regulatory action, and litigation. Contact us today to access crucial information about potential vendors and suppliers. This way, you can make informed decisions and avoid the risks of selecting vendors who can’t deliver.