A Dating Guide for Vendor Due Diligence

If you've ever had a relationship fade out after a few dates, then odds are you already know what it's like to have a failed vendor relationship. 

At first, you wonder how you could have been so wrong. But after some quiet reflection, you realize that maybe, just maybe, your initial screening process was not as strong as you once thought. As time goes on, you realize the warning signs were present from the onset, and that your troubles could have been avoided if you simply asked better questions at the beginning of the courtship.

So much like your personal life, there are a few necessary steps to take during the vendor courtship stage to make sure you are not left sitting alone, wondering why things did not work out.

Conduct a Site Visit (Where do they live?)

You probably wouldn't date someone who lives in their parent's basement, and nor should you engage with a business that does the same (or its equivalent). Take the time to personally visit your vendor's location. See it with your own eyes. Is there proper security in place? Do people actually work there? Is there sensitive information in public view? Does it look like a legitimate operation? 

When someone's house or office gives you the creeps, it's usually a solid indicator to cut bait without delay. 

Ask for Financial Statements (Do they have a good job?)

"What do you do for a living?" Everyone has been asked (or has asked) this question by a potential mate. And if we're being honest, this is a thinly veiled attempt at trying to figure out whether you will be paying for dinner because your new counterpart is financially destitute. 

The financial viability of your vendors is equally important. Do you really want to partner with a company who is wildly over-leveraged or that might be out of business before the contract is completed? Are they going to have to skimp on paying for the resources they need to execute to pay their bank note? Of course you don't want to work with a vendor with financial problems. Use your vendor's financial statements to determine whether they are viable in the near and far term to minimize unwanted surprises. 

Check Their References (What do their friends say about them?)

You are only as good as the company you keep. And it is always a bad sign if a potential mate does not have friends or if the friends they do have say terrible things about them. Common sense, right? 

The same is true of your vendors. If a vendor cannot produce a reference that is representative of the type of work they want to conduct for you, it is extremely likely your business is going to be used as a guinea pig. What's more, when a reference speaks poorly about a vendor, you should be alarmed for few reasons: (1) that's just not good; (2) it suggests the vendor does not have any happy clients to refer; and (3) it demonstrates bad judgement on behalf of the vendor. In any event, run away. 

Meet the People Doing the Work (Is someone else writing their love letters?)

Think about how horrified you would be if you found out your new partner hired a ghost writer to pen their love letters to you, or tried to repackage take-out as home cooking. You would be horrified because nobody appreciates a bait and switch. 

Unfortunately, it is all-too-common for vendors to bait and switch their clients, albeit not with love letters or home cooked meals. Instead, vendors will - unbeknownst to their clients - hire contractors to do the work they promised they could deliver. 

As a business owner, I can tell you this is infuriating. I can hire my own contractors to handle an issue. When I hire a vendor, however, I am paying for their expertise, for their processes, and for their culture. Anyone can repackage goods at a markup. Avoid the bait and switch. 

Following these tips will help you forge strong partnerships with your vendors, or at least help you avoid disaster in your personal life. 


Frank Ewing  

Frank Ewing

 

Frank Ewing is the partner in charge of operations and subject matter expertise in the firm’s risk and compliance practice and also serves as Assistant General Counsel.  He is a licensed attorney and an anti-money laundering expert with over 13 years of combined professional experience in global consulting, banking, and law. Mr. Ewing has extensive hands-on experience in the areas of anti-money laundering compliance, regulatory enforcement actions, regulatory affairs, internal audit, commercial litigation, corporate investigations, fraud, and risk management.