What Is Vendor Compliance?

Malcolm Tatum

Supplier or vendor compliance is a term that relates to the policies and procedures that vendors agree to follow in order to earn and maintain the business of a client. The idea behind this type of compliance is to ensure that both the vendor and the client have a clear understanding of the responsibilities that each assumes as part of the working relationship. For the vendor, this means complying with all covenants made in the contractual agreement that governs the business relationship, as well as agreeing to follow customer protocols for the placement and fulfillment of orders.

Man climbing a rope
Man climbing a rope

The specifics of vendor compliance will vary, depending on the type of customer involved and the specific needs of that customer. In some cases, the compliance may focus on actions such as agreeing to deliver orders within a certain time period. At other times, the billing process may be a component in the vendor compliance. For example, a legal firm may require that a teleconference provider always reference a client and matter number on the invoice for each conference call run under the terms of the agreement.

As part of the vendor screening process, potential clients and vendors have the opportunity to assess the needs of the customer and compare them to the capabilities of the supplier or provider. During this phase of the vendor compliance investigation, the goal is to determine if the establishment of a relationship between the two would be mutually beneficial. Assuming that the vendor offers the products the client requires at prices considered reasonable by the customer, can deliver those products according to the terms outlined by the client, and can provide the type of invoice detail and payment terms that the customer desires, there is a good chance that the two entities can establish a satisfactory relationship that can last for the long term.

Customers typically have some type of vendor management process in place that makes it easier to evaluate the degree of vendor compliance that occurs over time. This management approach is important, since chances in policies and procedures on the part of the vendor may reduce the level of compliance, making it necessary to begin looking for new vendors. Vendor compliance monitoring can also spotlight that a particular vendor is consistently in compliance with the terms of the working agreement between the two entities, a factor that may prompt the customer to provide even more business volume to that vendor, as well as increase the chances of recommending the vendor to others.

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