If you’re working with third-party vendors, due diligence isn’t a formality, it's a necessity.
The due diligence process for a vendor is the way you analyze potential risk prior to entering into any binding agreement.
It's the process of checking a vendor's financial status, legal status, cybersecurity habits, compliance level, and operational capacity.
Skipping or hurrying this process can have long-term consequences.
Consider data breaches, service downtime, regulatory fines, or even to your reputation.
It's not about box-ticking; it's about making the right decisions to safeguard your business.
But here's the catch: most teams are still conducting due diligence in silos through email, spreadsheets, or casual calls.
That results in uneven vetting, overlooked red flags, and dispersed documentation.
This blog deconstructs a practical vendor due diligence process you can actually adhere to.
Finding a risk in the process of due diligence on a vendor is only the first step.
What is truly important is what you do about it and whether or not you have a good remediation strategy in place.
Remediation is merely a matter of determining what is amiss, whether it is possible to make it right, and then explicitly defining the steps a vendor needs to take to make it so.
This may range from instituting tighter data protection controls through to creating compliance certificates or facing a third-party audit.
If your team does not have a formal system to follow up on issues, assign next steps, and record decisions, things fall between the cracks.
That is why more organizations are beginning to tie their due diligence procedures into their contract management systems.
With a platform based on Microsoft 365, you can link findings of risk to particular clauses, timelines, and parties within the contract.
You can monitor vendor obligations, remind them, and make sure everyone's held accountable.
In short: a risk identified is good, a risk well-managed is better.
A good remediation plan doesn't merely "address problems", it instills trust, fortifies your vendor relationships, and makes your organization resilient and compliant in the long term.
It requires structure, clarity, and business goal alignment. Let's dissect what goes into a remediation plan that's actually effective:
Before you can fix something, you must first know what's wrong and how badly it's wrong. Is it a one-time thing, or an issue of system weakness?
Your initial step must be classifying the degree of the problem:
Achieving this clarity enables you to focus your remediation efforts and establishes expectations inside and with the vendor.
Your procurement, compliance, legal, and security teams must be on the same page about what resolution looks like.
Does the vendor need to get a new certification? Update a contract clause? Submit to an independent audit?
Having these criteria defined upfront ensures you’re not improvising later, and the vendor knows exactly what’s expected of them.
The intention is to make the partnership stronger. Be open in approaching the discussion.
Explain why it's important, how it affects your risk exposure, and what they can do about it.
Most often, vendors will value this input. It provides an opportunity for them to become better and secure long-term business.
If they become defensive or aren't responsive, that speaks volumes too, it can be an indication that they aren't a good fit.
Having defined the necessary steps, divide them into specific steps with owners, timelines, and deliverables.
Who within the vendor side is going to force the fix? Who from your side is going to test and sign off? If a vendor must roll out multi-factor authentication, the plan should identify:
Maintain a record of the initial issue, remediation actions, communications, and ultimate resolution.
If you ever get audited, investigated, or questioned why you moved forward with a vendor in the face of a red flag, this document is your safety net.
Employ your vendor management system or contract lifecycle management (CLM) platform to centralize this documentation.
Lastly, realize that remediation is seldom an all-at-once solution.
The vendor may plug a hole today but get behind again in six months' time.
That's why follow-ups need to be planned, regular reassessments and performance reviews.
Incorporate remediation provisions into your contract, so expectations are documented, not a verbal understanding.
Start by verifying the vendor’s legal identity.
Who are they, legally and operationally? Understand their business registration, ownership structure, years in operation, and any affiliations with parent companies or subsidiaries.
This ensures you’re engaging with a legitimate, traceable entity.
Then, evaluate whether the vendor is financially healthy.
Request annual reports, credit ratings, or other available financial information.
A cash-strapped, debt-ridden, or investor-pressure prone vendor may not be able to maintain service levels over the long term.
Financial health tends to be a good indicator of delivery reliability and partnership viability.
Depending on your sector, regulatory necessities can differ but the necessity of vendor compliance is common across all sectors.
Ensure they meet the critical standards applicable to your enterprise, i.e., GDPR, HIPAA, SOC 2, or ISO.
Additionally, find out if they have experienced any recent years' regulatory fines.
If the seller is going to touch your data or integrate with internal systems, dig into how they treat data.
What are they using for encryption? Who gets access to your data? What is their breach process?
It's not a matter of having security policies in place on paper, it's actually about real-world application and transparency.
Inquire about disruption planning. Whether it's a server failure or cyberattack, do they have recovery procedures, backup systems, and contingency plans?
A business continuity plan indicates that they've considered the worst-case scenarios and will not leave you hanging when they're down.
Assess the vendor's adherence to ethical labor, sustainability, and diversity practices.
ESG consideration lacking is not merely a reputational risk factor but can also trigger tension with your corporate values and stakeholders.
Get familiar with the vendor's legal stance. Are they facing any lawsuits? Who retains the IP they're providing? Do they have suitable liability insurance?
All these facts guard you against future conflicts and ensure your contracts remain enforceable and equitable.
Most vendors use a network of partners to make their services deliverable.
Inquire about who those partners are, what their role is, and if they are held to the same standards.
Risk does not end at the main vendor; it reaches right down to the delivery chain.
Finally, don’t just trust what’s on the website. Ask for references from current or past clients, ideally those in a similar industry or use case.
How responsive is the vendor? Do they meet deadlines?
Real-world feedback often highlights performance gaps that no due diligence document will show.
Every remediation effort is more than a fix; it’s a feedback loop.
If you’ve had to remediate a vendor issue, you’ve got valuable insight sitting right in front of you.
Too often, due diligence is treated like a checkbox exercise.
You ask the standard questions, collect documents, and move on.
But when it happens, you get a wake-up call about what your process may be lacking.
Perhaps you didn't ask the right questions. Or perhaps the risk was indicated, but no one followed through.
That's why your due diligence process must change with each remediation cycle. Begin by writing down the root cause of the defect.
Use these findings to refresh your VDD playbook. Streamline your checklists, scoring rubrics, and escalation processes.
Educate your teams to recognize the fine lines, not the blinders.
You aren't learning from remediation to put people in the hot seat.
You're doing it to create a wiser, tougher VDD process, one that improves with each vendor you bring on board.
When you have a remediation plan that's strategic, a solid checklist, and a feedback loop, you're not merely sidestepping trouble, you're creating resilience for the long term.
You require systems that enable proactive management, teamwork, and accountability.
That's where technology such as Dock 365's Microsoft 365-based contract management solution comes in.
It automates vendor paperwork, streamlines approval processes, and keeps everything on track, all within your current Microsoft environment.
Ready to streamline vendor due diligence and make your contract processes a strategic differentiator?
Schedule a free demo with Dock 365 and discover how we can enable your team to get in front of vendor risk.
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