Managing Vendors and How to Comply with Regulations
When it comes to risk management compliance and regulations, it’s easy to feel like you’re navigating a house of mirrors. Just figuring out what regulations you need to follow is an adventure in its own right.
That’s before you add your vendors into the equation.
Third-party vendors can be a tremendous asset to your business–or your weakest link. Ironing out compliance issues often makes the difference between a worthwhile partner and a huge risk to your future success. Here are a few ideas to help you manage your vendors and comply with regulations.
Most Prevalent Security Regulations
In the United States, there are dozens of laws regulating vendors. Take cybersecurity, for instance, where vendors are often the weak link in your cyber ecosystem. A sampling of the major laws regulating data security include:
Even examining a single regulator, National Institute of Standards and Technology (NIST), produces a long list of regulations. So the truth is, when it comes to compliance, you and your vendors are often navigating a maze.
What Does Non-Compliance Cost?
While this maze may be dizzying to stumble through, the cost of ignoring it is simply too high to risk.
According to a 2018 report by Ponemon Institute and GlobalScape, the annual cost of non-compliance runs an average of $14.8 million, with a range between $2.2 million at the lowest and $39.2 million at the highest. For context, the cost of compliance is an average of $5.5 million.
In other words, the cost of non-compliance is about 2.71 times higher than following the rules to begin with.
Keep in mind that costs may vary depending on your unique business, but one way or another, it costs far more to disregard the rules than investing in doing it right the first time.
Implementing a Vendor Compliance Program
The question then becomes how you manage vendors and ensure compliance. After all, third-party vendors are independent businesses, and you can’t control how they run their operations. On the other hand, you can’t afford to be taken by surprise either.
Here’s the good news: you don’t need to run your vendors’ businesses for them. You just need to give them a framework to do business with you successfully. That means a vendor compliance program that makes it easy to identify problems, manage risk management compliance and regulations in one place, and ensure transparency.
Here are a few steps to implement a successful compliance program.
Before you build a program, you have to know where you currently stand with your vendors. In other words, you need to identify any problem vendors so you can fix compliance issues strategically.
Start by looking at the vendors with the highest unit volume and numbers of receipts. Look at vendors who provide services you use every day, like a third-party cloud-based software system. Then, take a closer look at the problems those vendors create for you.
For example, do they have a track record of delays in processing? Do you have invoicing issues? What about accounting or processing systems? Or their security practices with your proprietary data?
You don’t need to implement compliance on all of your vendors in one swoop. That will be overwhelming and frustrating, with too many moving parts to ensure every vendor is on track. That’s why we said to focus on your biggest vendors first. That doesn’t mean your small vendors can’t cause problems, but rather that you need to prioritize.
Start with Large Problems
Similarly, when looking at issues with a vendor, it helps to start with big problems first. These are the problems whose solutions will bring you the most benefit.
For example, if you have consistent issues with document routing, cleaning up that process is a good place to start. Rather than implementing a policy all at once, you should instead build a policy focused on correcting major compliance issues first.
Once you deal with large problems, you can turn your attention to small issues that add up over time. Your approach in dealing with larger problems will help structure your compliance methodology for smaller problems.
Unfortunately, compliance isn’t a decision that your company makes on its own. The vendor has to be equally participative to get the effort to make it off the ground.
The best way to do this? Keep it short and sweet.
Vendors will have an easier time abiding by your compliance standards if they’re easy to follow. They’ll also be motivated to follow through if they adequately understand the cost of noncompliance.
As a wise man once said, brevity is the soul of wit. So keep the backbone of your compliance policy simple: follow it or no longer do business with you. From there, helping your vendor understand what compliance entails (and making it straightforward to comply) will simplify the process for everyone involved.
Communication is Key
Keep in mind that regulatory compliance is not punitive. It benefits you and your vendors in equal measure, and both sides are equally motivated to make this work. You just have to be on the same page.
So, treat this as an opportunity to strengthen your vendor relationship. Lay out your expectations clearly, and don’t be afraid to ask a lot of questions (and answer a lot of questions too). Stress to your vendor that you want to build a mutually beneficial arrangement, and work with them to communicate how to do it.
Mastering Risk Management and Regulations
When it comes to risk management compliance and regulations, you already have your work cut out for you. So why not make it easy to know where you stand with your vendors, communicate issues, and develop a successful working relationship?
At Privva, our job is simple: to help you ask the right questions at the right time. We make it crazy easy to automate your vendor risk management so you can focus on what you do best: running your business.
Ready to face your challenges head-on? Get in touch today to find out how we can help.