Finance News & Insights

Vendor risk management: Is your company covered or exposed?

In Finance, you monitor vendor risk each and every day.

You check invoices for legitimacy before approving them. You assess contracts for accuracy and sufficiency.

And you’ve trained your finance staff to do the same – to double-check prices, verify supporting documentation and question anything that looks “off.”

But for some companies, the effort stops there, say the experts at Coupa. Many don’t have a formalized vendor risk management program.

A formalized program looks past the day-to-day to see if vendors are compliant with laws, maintain honest business practices, are financially and legally sound, and meet your company’s performance standards.

Such a program can go a long way to ward off financial and legal trouble, both now and down the line.

Less risk, more reward

As your company grows – increasing spend, boosting existing relationships and creating new ones – vendor risk management becomes even more critical.

Here are four ways to level up your current efforts:

1. Decide your scope. Once your company gets into the vendor risk waters, you’ll have a better gauge of the time and effort those tasks will require from your staff.

If you have fewer vendors, it may be manageable to monitor them all.

If you have hundreds of vendors, you may only want to manage risk for some vendors – like those you value the most or allocate the most spend to.

2. Change the culture. To be most effective, it’s essential to create a culture that values vendor risk management, Coupa points out.

The first step to do that: Add a policy that includes 1) screening procedures for vendors during onboarding and 2) reviewing them regularly to make sure they meet your company’s compliance and performance standards.

After the policy’s in place, you’ll want to be sure you and staffers actually make a habit of it. Setting a routine time (i.e., first Monday of each quarter) to review vendors could help remind staffers to make the time for it.

3. Form a risk committee. Especially at companies without a designated risk management team, creating a committee can prove extremely useful. Members may include your A/P manager, purchasers, CPO, and even your CEO (depending on your company’s size).

Coupa suggests bringing everyone together once a quarter to discuss vendors and strategizes to mitigate future risk.

4. Take small steps. A formal program doesn’t have to mean lots of fancy bells and whistles.

A/P and Purchasing likely already solicit vendors for updated master vendor file details. In addition, ask them to collect key info on top vendors’ businesses and policies, Coupa says. They could also request financial reports on your vendors from credit agencies.

These and other small steps, paired with your current practices, will promote more security and success.

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