The Top Vendor Risks and How to Manage Them

Valenta BPO ES > Blog > The Top Vendor Risks and How to Manage Them

Many businesses opt to outsource to third-party vendors for a range of services. Some nice benefits can come from working with these vendors including the expertise they can provide. It can also reduce the need to hire and train new employees. Working with vendors can be a good way to reduce the amount you are spending and increase your overall efficiency.

However, as great as it can be to work with vendors, there are also some risks. You need to be careful when you are choosing vendors, so there are no disruptions in your business. Let’s look at some of the biggest risks, so you can hopefully avoid them.

Risks for Compliance and Regulation

Does your business have to follow any specific regulations and laws for your specific industry? For example, if you have a medical clinic, you are bound by HIPAA. Others might be bound by the Bank Secrecy Act or the Anti-Money Laundering Act, for example. Make sure that the vendors you are choosing to comply with all of the regulations that apply to your company and industry. You might have your own policies that are internal to the company. You need to be sure they can follow those compliance guidelines, as well.


Cyber threats are a very real possibility today. Whether it’s theft of data through a breach, malware, ransomware, or another cybersecurity risk, what can the vendor do to keep you safe? All companies, regardless of your industry or size, will be at risk. If you are the victim of a cybersecurity attack, it could damage your reputation, and it could make your customers think twice about staying with you. Businesses stand to lose a lot today if they are not protected from these types of threats, so be sure you work with a vendor that can provide you with the security you need.

Your Reputation

Often, your reputation will be tied to the quality of your vendors. If you are working with a vendor that provides poor customer service, allows the security breaches, provides low-quality site service or doesn’t deliver, it will reflect on you and damage your reputation. If the processes, systems, or employees of your vendor have problems, it could result in a disruption to your workflow and production, affecting your overall operations. You need to have vendors that take their jobs as seriously as you take your business, and that they can provide you with what you need.

Profit Risk

If your vendors can’t keep up with the delivery of your services or products for one reason or another, you will be losing profit. For example, if you have a vendor that’s responsible for keeping your ecommerce site up and running, and they fail to do so, you will be losing out on purchases from your customers. Even if it’s only down for a few hours, it could cut into your profit. It will also make the customers think twice about using your business. They might just decide to buy from a competitor.

Additionally, there is the risk of falling short of your quotas if the vendor is providing low-quality parts or service, or slow service. This can have a negative effect on your finances, and your reputation. You don’t want to provide subpar services and products to your customers, but you don’t want them to have to wait a long time either.

Legal Risks

You might be bound by contract to deliver products, services, etc. by a certain date. However, when you are relying on your vendors for parts, manufacturing, compliance checks, etc., there is the risk that they will be late. If this happens, your company will be the one that has the legal trouble.

There are other types of legal and contract trouble that could develop, as well. for example, the contract that you have with the vendor could have hidden languages or clauses in their contracts. This is something you and your legal team will want to consider when you are reviewing contracts with vendors.

Geographic Risk

This is a risk that many companies never consider. However, it could cause some serious problems. If you are outsourcing to one vendor for an important business service, or if you choose several vendors that are all in the same geographic location, there are geographic risks. If there is a natural disaster or political upheaval, it has the potential to slow or stop those vendors from working for a period. This will slow down the rest of your business, as you might not have the services or products that you need.

Additionally, if you are working with vendors that aren’t located in your country, you need to be sure that they can meet your compliance needs. You may also have to be sure that you are able to comply with the standards and regulations in their country, such as the General Data Protection Regulation that’s required when working with businesses in Europe.

What Should You Do to Reduce Your Risk?

When you are choosing vendors for your business, you shouldn’t just choose the first company you find. Instead, you need to do your due diligence and research the company. Audit them and assess the potential risks of working with them. Make sure they are the best solution for your business, so you can reduce your risks. A little research will go a long way when it comes to onboarding the right vendors for your business.


Leave a Reply