Vendor Background Checks: A Complete Guide For Companies

Finding the right vendor for your business can be a daunting task - they need to have the right products, competitive pricing, good customer service - but one thing many companies overlook is vendor background checks. Performing thorough background checks enables you to make an informed decision about who you are doing business with and the safety of your company’s valuable data. 

Our comprehensive guide on vendor background checks covers all of the key areas to consider when evaluating a potential vendor; details on how, when, and what to check; as well as steps to ensure compliant, secure practices. Educating yourself on how to perform a vendor background check could save your business thousands in potential losses, so read on for answers to all your questions about conducting effective pre-hire vetting.

What Happens When You Fail to Screen Vendors

Bringing vendors on board to help power an organization's operations is increasingly common in today's business landscape, but failing to properly screen those vendors can put businesses at great risk.

Without doing a thorough background check and researching both their company profile and past performance record, businesses leave themselves vulnerable to fraud, theft, or worse. Poorly vetted vendors may also be unqualified or unskilled in what they are hired to do — leading to unsatisfactory deliverables and disappointed customers.

Businesses must take great care when considering outside vendors — taking the time to comprehensively screen them before committing can help organizations ensure that everyone involved is successful.

Things that can go wrong if you don't properly vet your vendors include:

• Security breaches

If your vendor has access to sensitive data and does not have proper security measures in place, your data can be easily compromised.

• Reputation damage

When you work with a vendor, you essentially entrust them with your brand reputation. If the vendor is not reliable, your business reputation can suffer as well.

• Compliance issues

If your vendor is not compliant with regulations or laws, you risk bearing the consequences of their non-compliance.

• Operational disruptions

If your vendor experiences downtime, it can lead to disruptions in your own operations.

• Financial loss

If a vendor is not financially stable, they may not be able to deliver products or services as promised, leading to financial loss for your business.

Things to Look For When Vetting Your Vendors

When it comes time to do business with a vendor, it's important to understand their background and qualifications. Before signing any contracts, you should vet them thoroughly and make sure they are trustworthy as well as credentialed.

Aspects such as their customer service history, insurance policies, and financial stability will give you a better sense of their ability to provide the goods or services you need in a timely manner. 

Additionally, it's wise to learn about their track record for successful deliveries. This knowledge can help you predict if any potential problems may arise along the way. Here are some other things to look for when vetting your vendor:

Criminal Background Check for Your Vendor

One of the most important things to check during this process is a criminal history. Knowing that your vendor has had no brushes with the law will help ensure smooth working conditions, and being able to trust this individual or company is a key factor in determining the success of your collaboration. 

Before committing to any agreement, make sure you ask for proof of vendor background checks so that you can have peace of mind knowing everyone involved will be held up to the highest standards of professionalism.

Be Sure to Check Their Civil Records for Lawsuits

Another step to take in the vetting process is checking civil records for any lawsuits that could be of concern. This due diligence is important to make sure you don't end up with a partner who has broken the law in a way that could reflect badly on your reputation or inhibit their ability to help you achieve your goals. 

When vetting potential vendors, make sure to check civil records and look into any red flags that may arise. By taking this extra precautionary step, you can rest assured that you have chosen an upstanding partner with whom you can work with peace of mind.

Investigate Any Previous Names or DBAs

When vetting a vendor, companies should be sure to investigate any previous names they may have used throughout the years or any "Doing Business As (DBA)" entities that have been established. A vendor's history can reveal valuable information pertaining to their operations and it's important to consider that before committing to a supply chain partner. 

Previous business practices may indicate if a vendor is trustworthy and reliable, so it's best to conduct thorough research on the company's performance before signing an agreement with them. Delving into a vendor’s past is critical in assessing if they are the right fit for an organization.

Make Sure Your Vendor Has Appropriate Licenses

When vetting your vendors, licenses are an essential factor to review. Confirming that the person or company meets all necessary requirements and certifications for their business is critical to ensure you are getting a reliable, quality service. Failing to properly vet a vendor can have legal ramifications and put your project at risk. 

Reviewing evidence of any relevant permits or certificates may take time but could save headaches - and money - down the road. Don't underestimate the importance of analyzing their provided credentials - it may give you a better understanding of whether they are right choice for your needs.

Look Into Your Vendor’s Workforce

When looking for a vendor, one of the most important steps is to research not just their operations, policies and approaches, but also the employees who work for them. It's warranted to ensure that their staff members have adequate experience, knowledge and commitment—all qualities necessary to make your working relationship a success. 

By taking the time to research their team members, you can get an idea of the company culture and know whether they are truly suited to meet your needs. Don't forget that this is an important element when considering all other critical criteria as well.

How to Screen Your Vendor

To start, you'll want to create a screening and auditing plan, maintaining an up-to-date list and categorizing vendors to assess their risk profile. Have standard operating procedures in place before initiating any vendor screening processes so you maintain accountability and organizational compliance. 

It's also important to communicate with your vendors early on, making sure they're aware of the importance of proper background screenings and other security checks before signing a contract or commencing work. 

While there are similarities between employment and vendor background checks, there are also some important distinctions. To avoid any compliance violations, having a thorough understanding of the differences between vendors and contractors is absolutely essential.

Moreover, you’ll need a background screening specialist who will be able to provide you with an appropriate vendor screening program that is tailored according to your size, whether you employ many vendors or only work with a few. 

Cloud-based technology provided by your specialist should make it easier for you to perform background checks, review crucial reports and e-disclosures, as well as make sure that your program abides by all relevant federal laws and industry-specific regulations.

Conclusion

Performing vendor background checks is an important and necessary step for any business looking to form relationships with their vendors. After reading this guide, you should have the proper resources and information to properly vet your company’s potential partners. 

If you’re considering on-boarding a new vendor, take the time to properly screen them as this will help prevent sticky issues from sprouting up later down the line. You’ll be glad you did.