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A company’s internal strive for continuous improvement should never really cease. The same expectation of excellence should hold true for the vendors that you partner with to have a hand in your daily business model.

Vendor. Third-Party. Partner. These are synonymous terms for people who play a critical role in the success of any business. From software providers to independent contractors, most companies find themselves at the hand of an outside entity to execute a business task. In most instances, a vendor can perform this task more efficiently (cheaper, faster, better) than could the company themselves. Control costs, mitigate internal risks, and drive service excellence – that’s the purpose behind outsourcing the task at hand. But do you really know who you’re jumping into bed with? Having an outlet to streamline processes and systems is great, but it’s important to consider the people behind them. Many companies simply do not have a standardized vendor on-boarding and vetting process.

How do you start your search for a vendor? Is it page 1 of Google results? Recommendation from an industry contact? How many of those potentials are you physically driving by to observe the brick and mortar behind the name?  No matter your approach, keep crystal clear the relationship (and potential liability) you are about to create.

The legal culpability varies by sector, but consider for a moment your business lives in the Financial Services space. In that arena, the Consumer Financial Protection Bureau (CFPB) requires that a Company “…oversee their business relationships with [vendors] in a manner that ensures compliance with Federal consumer financial law…” What does that mean? Very plainly, you are vicariously responsible for the actions of your vendor.

Your vendor will play a critical role in you company’s success or failure, so management of vendor tasks, contracts, performance, and relationships is mission-critical.

How to manage the actions of others

A vendor compliance program should consist of several core components:

Value Add – why do you need a vendor? How will the vendor accomplish the needed benefit better than you could on your own?  Is this a short, or long-term need? There is no “normal” length for a vendor relationship – the time frame could be anywhere from a week (or less) to many years, with many contract renewals.

Risk Assessment – will the vendor need to face your customers? Will they receive and store data? Will they require on-site access to your business? How frequently, and to what extent do you need to rely upon their ability to execute?

Due Diligence – do you require that the vendor complete an RFP (Request for Proposal) for your business? A sealed bid? Questionnaire? Other formal documentation of scope of work and price point? Qualify the vendor – what makes them an industry expert int their space? Your DD process will really set the expectations of quality for the relationship moving forward. This stage should be the most formal of the program components.

Contracts – Establish a clear definition of responsibility. Often times business are so clouded by the endpoint – the vendor’s work product – and the assumption that everything will be fine, to very carefully scrutinize the small print. Payment terms? Pay bonus or penalty considerations? Will you supplement pay (or demand a bill reduction) based upon performance?

Set Your Standard – Accountability and transparency. Your vendor needs to be an extension of your business arm, and therefore needs to adhere to the same core values. How will you evaluate that expectation, and overall performance? Make use of clearly defined “KPIs” (key performance indicator) reports to assess vendor success. Open – and regular – meetings and other communication. Establish a Point of Contact (POC) for your vendor for daily inquiries, if needed. Provide a full spectrum of feedback (i.e. don’t just identify and complain about problems! What have been the vendor’s successes and biggest accomplishments to date?) Measure milestones.

Audit – You need to be provided with, and be able to recite your vendor’s policies, procedures, and checklists, as if they were your own. Don’t be afraid to question and demand clarification, additions to, or amendments to the scope of their work standards, as it relates to your business model and requirements. If they want your business, they will work for it. Do you need to be in a constant frenzy of watching over the shoulder of each and every vendor you employ? Well, maybe? In determining what vendors to scrutinize (and how often), a company really has to take a look in the mirror. What is the level of risk involved to YOU, with the actions performed by your vendor? The aim should be to conduct thorough audits with greater frequency for targeted, high-risk vendors.

Termination – Certainly the last thing on your mind when onboarding a vendor is what to do when you need to fire them. But the exit from your business is just as important – if not more so – than the red carpet in. Do you need a reason? Who owns their work product after separation? Non-compete concerns? Data destruction guidelines? Reasonable notice and penalties? Extension of Non Disclosure Agreements? Don’t let a vendor down-play these concerns during contract negotiations. Put future protections in place that meet your needs.

Set your expectations for each of these areas and communicate them very early on in the conversation. Demand nothing less than full transparency, swift and crisp communication, and a robust compliance program as vigorous as your own.

Know when to separate

If there is smoke, there is fire. If you can’t answer for and justify the actions taken by your vendor, it’s time to cut the cord.

By: Jeremy Felder

Dated: April 25, 2018

About: Jeremy Felder holds a Master’s Degree from Tiffin University and is the Chief Compliance and Operations Officer at Chase Receivables in Fairfield, New Jersey. He is a member of ACA International (ACA) and is certified and credentialed by the ACA as a CCCO, PCS and ACA International Scholar. Jeremy also holds a Board position as the Vice President, Office of Project Management, for S4 Infinity – an international non-profit organization.