What is Vendor Due Diligence?
Definition
Vendor Due Diligence is the process of thoroughly evaluating a vendor’s financial, operational, and compliance capabilities before establishing or continuing a business relationship. It ensures that vendors meet organizational standards and regulatory requirements, reducing risk and supporting effective procurement and payment processes.
How Vendor Due Diligence Works
Vendor due diligence involves multiple steps, including Vendor Financial Health Assessment and Working Capital Due Diligence to evaluate liquidity and financial stability. Organizations apply Vendor Risk Mitigation Plan strategies alongside Vendor Performance Improvement Plan initiatives to ensure vendors can meet contractual obligations. Automation through ERP Integration (Vendor Management) and API Integration (Vendor Data) enables efficient data collection and validation. Governance and oversight are maintained via Vendor Governance (Shared Services View) and Shared Services Vendor Management, while Segregation of Duties (Vendor Management) ensures checks and balances. Compliance readiness is supported through Vendor External Audit Readiness and adherence to Vendor Record Retention Policy. Additionally, a Vendor Corrective Action Plan addresses any issues identified during evaluation.
Financial and operational assessment of vendors before engagement
Risk mitigation via structured Vendor Risk Mitigation Plan
Automation and ERP integration for accurate data validation
Governance and oversight through shared services frameworks
Compliance and audit readiness using external audit checks and record retention policies
Benefits of Vendor Due Diligence
Conducting vendor due diligence minimizes operational and financial risks, ensures compliance with organizational and regulatory standards, and improves vendor performance. It strengthens vendor relationships and enhances decision-making for procurement and payment operations.
Summary
Vendor Due Diligence is the systematic evaluation of a vendor’s financial, operational, and compliance capabilities. Leveraging ERP integration, governance frameworks, and risk mitigation plans ensures accurate, compliant, and efficient vendor management.