A vendor is any third-party individual or corporate entity that is engaged in a business for the purpose of providing goods or services. Prior to selecting a vendor should be properly vetted by a business owner, to help ensure that all desired and required needs will be met. It is not uncommon for businesses to engage third-party vendors for a variety of needs crucial to the business, such as payroll administration, records maintenance, information technology and product delivery. If a current vendor were to suddenly cease operation, the engaging company might easily be brought to financial ruin. Therefore, one of the most important steps a business owner can take when completing the vendor selection process is to investigate the financial position of the prospective vendor. Depending upon the nature of a small business, as well as the nature of duties for which the vendor is engaged, the processes and procedures around operational security must be determined and clearly outlined before the vendor begins to work with the company.
Vendor due diligence is a verification process to provide an organization the assurance that a service provider meets the standards to fulfill their business. Assigning the work of due diligence to a due diligence company can save a lot of time and effort of an organisation with an unbiased report, By carrying out an exhaustive set of checks like address, reference, criminal record enough vital information can be gathered about the opposite entity and the people associated with it. These checks delve into areas of credit worthiness, compliance history and political affiliations of a vendor. It can also be found out if the vendor is involved in unethical practices or not.
Out of various checks conducted in the process of vendor due diligence, reference check is one of the most crucial checks that an organisation must conduct on their prospective vendor. Positive references can dig out an abundance of valuable information about the vendor. In addition to vendor supplied references, a business owner should also conduct her own search by contacting the local chamber of commerce, the Better Business Bureau or even performing a simple Internet search. More deep reference check should be conducted by making reference calls to entities and clients associated with the vendor so that more insight can about the prospective vendor can be found out. It will also make you aware of the quality of the service the vendor provides.
Thus, Reference check plays a crucial role in getting a better view of the prospective vendor that helps in taking an informed decision in vendor selection.