What to Look For in a Third-Party Vendor

Consider these factors when picking a vendor

As an entrepreneur with a growing business, you may reach the point where it’s more profitable and efficient to outsource some of your company’s operations to a third-party vendor. Since this is a major decision that impacts multiple aspects of your company, it’s important to do your due diligence before signing any contracts. Here’s a look at a few factors to consider before you pick a third-party vendor.

Compliance checks

It’s easy to take for granted that the company you’re doing business with is fully legitimate. However, to protect your company and your customers, it’s important to check up on the credentials of any third-party vendors you’re considering working with. BitSight contributor Kim Johnson suggests making sure the company is licensed to do business in your area. Johnson also recommends reading up on the company’s key personnel, familiarizing yourself with the company’s structure, checking out reviews, and learning about the company’s facilities. Tour the factory if you can, but if you’re working with an international third-party vendor, it’s a good idea to request on-site photos and research the company to ensure that your products are being produced in a safe, clean, and ethical environment.

Take time to review contracts

While it’s exciting to add a third-party vendor to your team, entrepreneur and Inc. contributor Jason Albanese stresses the importance of reading the fine print before you sign any documents. If you don’t fully understand the terms of what you’re signing, consider hiring a lawyer to help you interpret the paperwork. This could help you ensure that the terms and conditions are fair, secure, and free from hidden fees. If you don’t have the budget to hire a legal professional, Albanese suggests going the budget-friendly route by seeking online advice from legal professionals.

If you find that the contract contains unfavorable terms, consider seeing if the vendor will negotiate. If they’re unwilling to provide flexibility even before you become a client, it’s unlikely that the vendor will be accommodating after you’ve signed a contract. In cases like these, Albanese suggests taking your business elsewhere.

Consider other risks

A third-party vendor plays an important role in your business, so you don’t want to pick a partner that will go out of business unexpectedly. Therefore, Johnson recommends inquiring about the company’s tax documents, assets, loans, and balance sheets.

It’s also worth doing your due diligence to make sure the vendor has a good reputation, both with other companies and the public. In addition to posing a risk to your company’s legitimacy, associating with a company that’s embroiled in controversy can drag down your brand.

Thoroughly comb through the company’s history to see if the vendor has been in hot water for producing faulty products, bad labor practices, or any kind of criminal activity. Johnson also suggests investigating whether the vendor has a history of data breaches, as this could put you and your clients at risk.

Need help verifying the legitimacy of a third-party vendor? Consider reaching out for legal counsel or hiring a business consultant.

First Bank of the Lake (“Bank”) does not provide financial, investment, tax, legal, or accounting advice. The content provided is for informational purposes only and should not be relied upon or considered as an express or implied recommendation, warranty, guarantee, offer, or promise. You should consult your own financial, investment, tax, legal, and accounting advisors before engaging in any transaction. Information provided is not exhaustive and is subject to change without notice. Accuracy is not guaranteed. Outlooks and past performance are not guarantees of future results. Articles may contain information from third-parties, and the inclusion of such information does not imply an affiliation with the Bank or Bank sponsorship, endorsement, or verification regarding the third-party or its information. Any external websites linked to this information are not managed by Bank. All third-party trademarks, service marks, trade names, and logos referenced in this material are the property of their respective owners. All loans are subject to credit approval. Qualifications, terms, and conditions apply to all Bank products and services.