Third-party vendors are an essential part of the modern business ecosystem. Regardless of the size of your organization or the industry it occupies, cultivating and maintaining relationships with the right vendors is important for optimizing your business.
Without a strong strategy to fall back on, vendor management can become a chore—especially when it comes to keeping track of payments. But it doesn’t have to be.
Here are some tips on how you can make the most out of your vendor relationships.
1. Choose and retain your vendors wisely.
Responsible vendor management starts right out of the gate with the vendor selection process. But before sending requests for quotes (RFQs) and requests for proposals (RFPs), you’ll need to build a thorough understanding of the following:
- The goods and services each vendor supplies
- The impact they’ll have on your organization
- How your demands will evolve as you begin to scale and whether the vendor will be able to support you with additional products or services
Once you have a thorough understanding of the above, you can start to factor pricing into the equation. While low-cost vendors might be desirable, especially if demand for their goods and services will increase as your organization scales, evaluating vendors on cost comes down to more than just the price tag. The following factors are equally important:
- How often you’ll be charged
- The vendor’s terms of payment, or when and how payment is expected
Finally, before you execute any contracts, you’ll want to examine and understand the risks you’re taking on when onboarding third parties. These might include:
- Cybersecurity risks such as compromised data or malware attacks
- Financial risks such as organizational instability
- Supply chain risks or the inability of a vendor to deliver on promised goods and services
Taking all of these factors into account, you should now have an understanding of which vendors are the most suited to helping you grow your business.
2. Manage vendor spend.
With your contracts in place, it’s time to move on to the next phase of vendor management: managing vendor spend.
While keeping track of spend across a handful of vendors might be simple enough, things can quickly escalate as your organization grows and brings on new services and providers. For large, established organizations, this can mean dealing with hundreds of vendors—all with different rates and payment terms.
Managing your vendor spend means putting in place high-level organizational strategies like implementing approval workflows for invoices or using management software to keep track of subscriptions and ensure you’re not paying for duplicate or overlapping solutions. Then, even if your number of vendors triples from one quarter to the next, you’ll still be able to:
- Have visibility into your expenses
- Ensure payments are made accurately and on time
- Keep track of the software licenses and tools you use and know when you need to renew
- Allocate vendor spend and plan your budgets efficiently
Ultimately, better vendor management equates to greater savings—protecting your organization from incurring unnecessary late fees, paying for duplicate or superfluous software, and a slew of other costly oversights.
3. Track vendor performance.
Managing your spend responsibly and staying on top of payments can result in immediate savings. But tracking vendor performance over time will result in even more savings in the long run.
That’s because it helps back up your vendor management strategy with actual performance data—giving you a better idea of how the services or goods you’re paying for are contributing to your business. Better still, you can use this information to your advantage when it comes to things like renegotiating contracts or choosing which vendors you’ll continue to partner with.
To keep track of vendor performance you’ll want to:
- Develop KPIs or metrics that relate to your vendors and your organizational needs
- Set achievable expectations
- Ensure your vendors understand these expectations and how they’re being evaluated
- Keep your KPIs dynamic by reviewing and adjusting them regularly
Tracking the performance of your vendors in this manner can help you weed out which relationships are negatively impacting your business—and take action to improve the situation.
Spend smarter with Rho.
At Rho, we believe vendor management should be more than just another pain point—it should be empowering. Our all-in-one finance platform offers best-in-class vendor management software that gives you the information you need to maintain a responsible vendor management strategy, as well as the flexibility your business needs to thrive.
Want to learn more about leveraging vendor spend? Reach out to one of our expense management specialists to see what Rho can do for your business.