If you bring a fresh employee into your organization, the hiring process’s final part is typically a background check. According to your company, maybe you are looking for evidence of past wrongdoing or just confirming that the data that’s been provided is accurate.
But would you go through that same process for your vendors?
Would you research the information they’ve provided and evaluate their past performance and history before you award them an agreement?
Or do you take their word for it and assume that the partnership is likely to be productive?
If you fall under the latter category, maybe you are putting your company at an increased risk for fraud and significant losses. The Association of Certified Fraud Examiners notes that small companies (those with less than 100 employees) lose more normally to fraud than more great companies. This is likely primarily because of the sturdy supplier chance administration practices within large organizations, including complete history testing of third-party vendors.
However, it’s becoming increasingly essential for even smaller enterprises to put more resources toward evaluating the danger of their vendor relationships and contracts and do the same work to guard their assets.
Reasons You Need Background Checks on Vendors
Imagine you arrive at a regular staff meeting, and one of your team leaders is excited. He’s met with a fresh vendor who promises to cut supply costs by 50 percent while still maintaining quality. They beat your overall suppliers on virtually every front. The catch? You have to invest a minimum of $5,000 each month. Your team leader lets you know he signed the contract, effective immediately.
It doesn’t take a long time before problems start, though. Shipments are delayed or never arrive. Quality is shoddy. The prices are more than quoted, and you’re losing money each month trying to keep the vendor. After a few months, you begin asking questions, and it becomes clear that the seller is not all it claimed to be.
This entire situation may have been avoided by implementing a vendor review policy that included a background check and multiple layers of approval for new vendors. Without it, you leave yourself at risk of contracts with vendors who at best may be unreliable — and at worst, fraudulent.
With this particular in your mind, there are numerous causes to check the backdrop of any organization you want to function with. These generally include:
Avoiding criminal association. A vendor with a history of illegal activity isn’t well suited for your company on several fronts.
Compliance with industry or legal regulations. According to your company and what access the seller must information, maybe you are required by law to research any vendors’ history.
Reduce legal liability. Knowing who you will work with and their reputation can help you save plenty of headaches and reduce or eliminate your liability should something go wrong.
Compliance with employment laws. Dealing with vendors who’re not legally permitted to work can produce major legal headaches for you. Confirming they’re allowed to function (including residency and license checks) maintains you in the clear.
At their center, merchant background checks give you a perception of who you will work with and items to expect. Even public information like customer opinions and Better Company Business reports can provide you with a sense of the caliber of their services, how they deal with problems, and how others experience them. You reduce your risk — and boost your chances of a productive, fruitful relationship.
How to Conduct Vendor Background Checks
You will find the data you’ll need to produce an educated decision is easily accessible in many cases. At least, you should be in a position to answer the following questions about any supplier:
- Are they certified and covered?
- Does the business have any upcoming appropriate issues?
- Does anybody in the commercial have an appropriate offender record?
- Who operates for the vendor?
- What’s the vendor’s status in the marketplace?
- Does all the data given by the seller complement?
- Has the seller been subject to any regulatory or government sanctions?
- Does the social media marketing profile match the data provided?
You will find multiple tools you can use to uncover this information. Although you can find much of the data yourself, you can save time by dealing with a specialist background screening service. This method’s benefit is that the professional organization provides insight and guidance based on industry regulations and best practices.
Implementing a vendor risk management program that uses artificial intelligence and machine learning to objectively evaluate risk and assign a chance score can also provide insights and permit you to make smarter contracting and purchasing decisions. Using these tools can protect your company from fraud and support better contracting, making them a valuable tool for an efficient and profitable business.