Vendor Due Diligence: How to Assess and Manage Third-Party Risks

Companies that rely on external vendors inevitably expand their risk perimeter as they acquire products and services. To keep that exposure under control, vendor due diligence (VDD) plays a critical role. Its structured process allows organizations to evaluate vendors before onboarding or renewal, ensuring they meet the company’s standards for reliability, security, and compliance.

In an era shaped by stricter regulations, ESG expectations, and rising cybersecurity threats, vendor analysis has become a cornerstone of operational governance. A single compliance failure or security breach in your supply chain can trigger far-reaching consequences across your organization.

That’s why modern teams are leaving spreadsheets and endless email threads behind in favor of digital due diligence. Centralized systems make it easier to collect data, assess risk, and maintain complete audit trails. 

Let’s see how this approach can fit into your company’s workflow.

What Is Vendor Due Diligence?

Vendor due diligence (VDD) is a systematic process that evaluates a supplier’s financial health, legal standing, operational reliability, and information security practices before establishing or maintaining a business relationship.

Its main objectives are straightforward:

• Ensure compliance with internal policies and external regulations;
• Minimize exposure to financial, legal, and reputational risks;
• Build a transparent, auditable foundation for long-term vendor relationships.

You might think it sounds similar to buyer due diligence, but they serve different purposes. While buyer due diligence happens during mergers or acquisitions to assess a company being purchased, vendor due diligence focuses on evaluating third-party suppliers your organization depends on to operate effectively.

And it’s not a one-time verification. VDD is a continuous process, involving ongoing monitoring to ensure that even approved vendors remain compliant as regulations, markets, or contracts evolve.

Key Steps

The vendor due diligence process follows a clear structure that helps organizations evaluate suppliers in a transparent and auditable way. Each stage examines a different layer of information and risk, building a complete picture of the vendor’s reliability.

Vendor Due Diligence in M&A and Procurement

In M&A transactions, VDD brings transparency to investors and buyers by revealing how the target company manages its vendor ecosystem, including contracts, obligations, and potential risks included. 

That clarity helps reduce uncertainty and speeds up decision-making during negotiations.

In procurement, VDD ensures that every supplier aligns with your organization’s compliance, ethics, and sustainability policies. It’s an essential step for protecting your brand’s reputation and meeting both ESG expectations and external audit requirements.

You know what makes this entire workflow smoother? 

Centralized systems that store all vendor data in one auditable place. 

This prevents information loss, keeps a full history of interactions, documents, and approvals, and gives your team the confidence of knowing everything is traceable, easy to find, and up to date.

How AnyDB Simplifies Vendor Due Diligence

Managing the whole process manually is time-consuming and error-prone. With AnyDB, compliance and procurement teams gain a centralized environment to collect supplier information, automate validations, and keep every audit record up to date.

Our platform turns complex processes into connected digital workflows, which means no more juggling multiple tools or fragile integrations. Here’s how:

• Vendor Compliance & Performance Template: Monitor supplier KPIs and audit outcomes from a single, consolidated dashboard.
• Vendor Audit Checklist: Structure recurring checks and link each one to its respective vendor record for traceable follow-ups.
• Form-to-database automation: Vendors can submit documents and forms directly into the system, automatically syncing to your internal database.
• Permissions and file sharing: Ensure data security and segregation between internal and external users with granular permission settings.
• Dashboard views: Visualize vendor status in real time, such as Under Review, Approved, or High Risk, with automated reminders for reviews and renewals.
• Linked records: Connect risk scores, attachments, and notes to each vendor record, maintaining a complete audit trail.
• Multi-step approval workflows: Build role-based approval flows that enable secure collaboration across compliance, finance, and operations teams.

Now imagine this flow: a vendor completes an onboarding form → the data syncs automatically with their Vendor Record → the compliance team reviews and approves → the vendor is added to the Vendor List → performance and risk are tracked over time.

The combination of these features makes vendor due diligence not only faster but also more reliable, auditable, and scalable as your supplier base grows.

Take the next step: centralize your vendor due diligence with AnyDB. Try it for free!

FAQs About Vendor Due Diligence

Still have questions about vendor due diligence? Find the answers here: