Vendor Management Best Practices

vendor management best practices

Last modified on June 18th, 2024

Without good due diligence practices, companies are unlikely to spot a potential vendor that has been placed on an international blacklist. Imagine accidentally paying a supplier with links to a country on the FATF blacklist, which puts your company at risk of unintentional money laundering and impacts your reputation. Read on to find out more vendor management best practices that businesses should use…

Trustpair facilitates vendor management and integrates with the main vendor management portals. We also secure vendor data thanks to automated account validation. Request a demo to learn more!

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What is Vendor Management

Vendor management is the entire process of a business overseeing its relationship with a supplier or third party.

It begins when you select a vendor in the procure-to-pay cycle before signing a contract and follows through to every way in which you operate with your supplier, including when you finish with them.

An effective vendor management process is important because:

  • Maintains a solid vendor relationship and improves it
  • The buyer and the supplier can communicate effectively
  • The buyer and the vendor need to be aligned and on the same page
  • Improves vendor performance
  • Controls costs of production


6 Vendor Management best practices

These vendor management best practices training methods will help ensure an optimal relationship with your supplier or third party.

Undertake due diligence

Gather comprehensive information on potential new vendors and suppliers to decipher whether your business and the vendors would be a good fit before signing any contracts and agreeing on any terms.

Assess their reputation, financial stability, and security, and whether they meet industry standards and quality requirements, as well as your own.

A due diligence policy is a staple of an organization’s vendor management framework.

Not undertaking due diligence can lead to:

  • Poor quality suppliers
  • Supplier with financial instability
  • Higher than-expected costs
  • Reputational damage
  • Supply chain issues
  • Fines and penalties due to errors
  • Fraudulent vendors or third parties
  • Vendor risk

A key risk is that a potential vendor is plotting to commit fraud against you. One of several vendor management examples is performing due diligence to gather the data and prevent fraud.

Trustpair’s software offers security. By providing continuous vendor data monitoring, you’ll be alerted to any issues throughout the procure-to-pay process. Any supplier risk will be detected instantly and a warning will be sent to your procurement and financial teams.

Set expectations

Upon working with a new supplier, one of the vendor performance management best practices is to establish, discuss, align expectations, and form agreements for the relationship.

For example, this could include letting the supplier know how much you expect to use them so you can organize delivery slots. Some suppliers may only be able to deliver on certain days and at certain times. So, being aligned on this will help build and maintain a solid supplier relationship.

As part of this expectation setting to measure performance, key performance indicators (KPIs) and goals can be set. The KPIs may include return on investment, customer satisfaction, and compliance rate.

Create clear, transparent communication

Data shows that almost 70% of employees feel that they would be more productive with effective communication at work. The same goes for external relationships.

Creating channels for transparency and communication with vendors is one of the vendor relationship management best practices.

For example, think about a situation where a supplier may be late delivering goods or services due to an internal error. As the buyer, you would want to know rather than find out when it’s too late. Especially if there isn’t much time to get the goods. By communicating this, the business could line up alternative, reliable vendors who they could use instead.

These vendors would have the capacity to deliver the goods and services in time and the buyer can maintain productivity. Adept communication also helps strengthen relationships between vendors and buyers.

Conduct reviews of vendor performance

The review may assess how vendor relationships run and an audit could outline small ways to improve, such as vendor compliance.

Conducting more reviews and audits surrounding the quality of vendor performance can be one of many good SMART goals for vendor management.

For example, in 2020, four people were charged with a fake invoice scheme that targeted Amazon’s vendor system for approximately $19 million.

It was alleged that Amazon paid for goods that it did not order.

The defendants agreed to supply goods at a certain price for specific quantities. They were said to have manipulated the vendor system of Amazon and then invoiced Amazon for substitute goods in excessive quantities and at inflated prices.

In one instance, Amazon had requested that the defendants shipped fewer than 100 units of an item, to which they agreed. Amazon was then shipped and invoiced for more than 10,000 units of this item.

Reviews and audits of vendors and the vendor system could have highlighted this alleged fake invoice scheme. Regular reviews and audits are certainly one of the vendor management best practices.

Establish a clear point of contact

Following the procurement process, one of the supplier management best practices is to establish a point of contact for the supplier.

Learn more about the different types of procurement here!

For example, if you need to contact your supplier, having a point of contact means that you can quickly and easily get in touch with whom you need to. You don’t have to waste time ringing different numbers.

This point of contact is someone that your business can go to directly if there are any issues with the goods or services, or in your relationship.

Manage vendor risks

By managing vendor risks, you can stay on top of your own operations and continue to operate effectively even if your supplier throws up some surprises.

Vendor risk management strategies form part of a strategic vendor management framework.

For example, if your company needs goods, services, or items in one week’s time and your preferred vendor can’t meet this deadline with the quantity required, you will need to use an alternative vendor.

Managing vendor risk involves having an approved vendor list in place so that if this did occur, you could opt for another reliable vendor who can provide the delivery in good time. Having an approved vendor list means that maverick spending shouldn’t occur.

Learn all about supplier risks in our latest white paper!

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Several vendor management best practices should be used to ensure a good relationship. Undertake due diligence on potential vendors and suppliers before signing a contract, set expectations, ensure clear communication, review vendor performance, have a point of contact, and manage vendor risk. Trustpair’s service facilitates vendor management and integrates with the main vendor management portals like JAGGAER and Ivalua.


The overall key strategy of vendor management processes is to assess the quality of a vendor, measure performance, and effectively optimize your relationship. Vendor management best practices ensure the relationship is as well operated as it can be.

The four stages of vendor management are segmentation, collaboration, implementation, and evaluation. The first stage is when you choose a supplier, you will then work with them as effectively as you can. Implementation involves putting a plan in place for optimal performance and the evaluation stage relates to reviewing the performance of vendors.

Our risk management software wipes out third-party fraud thanks to ongoing account validation throughout the entire procure-to-pay process. Our goal is to make sure vendor data is reliable and secure, at all times throughout the payment chain. This means organizations know they’re paying the right vendor the right invoice: no more delays, late payments, or funds going to the wrong beneficiary. Overall, it smoothens vendor management and improves relationships with key vendors thanks to automated processes and clear communication.

Our services also include dashboards with key risk KPIs and an overview of your vendors’ status. It will help finance and procurement teams spend less time on time-consuming processes and have more time for high-value tasks. On top of that, you will be in compliance with key regulations like the NACHA account validation rule or SOX law. We also provide the highest security standards to make sure your vendor data and procure-to-pay process are secure. 250+ businesses trust us already: be the next one!

Manage the risks related to corporate treasury.

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