Vendor due diligence checklist: A step-by-step guide

Vendors impact how your business operates, serves customers, and manages risk. Each vendor brings different levels of reliability, compliance, and security. Without proper due diligence, it’s easy to miss warning signs.

Due diligence gives you a clear picture of who you are working with, how they operate, and whether they meet your standards. For finance and procurement teams, it also ensures vendors align with internal controls and external compliance requirements.

What is vendor due diligence?

Due diligence gives your team the information to make confident, risk-aware decisions. Depending on the vendor type and what they will handle, it covers key areas like data security, legal status, financial stability, regulatory compliance, and ESG performance.

When done early, vendor due diligence prevents surprises later. It flags potential issues before vendor contracts are signed or data is shared. This matters because companies believe that most of their third party vendors are high risk, which increases exposure over time.

Laying the groundwork for your due diligence checklist

Jumping into a checklist without proper context leads to gaps, missed potential risks, and inconsistent reviews. Before you start gathering documents or evaluating vendors, you need a clear plan that reflects your company’s risk profile, business goals, and internal workflows.

Groundwork helps you scale vendor reviews without slowing down procurement. It ensures your team evaluates the right things for each type of vendor. Without it, you risk applying the same standard to a cloud storage provider and a freelance design agency, which creates inefficiencies and compliance issues.

Define the scope based on vendor criticality

Before evaluating a vendor, you must understand their importance to your business operations. Not every vendor carries the same level of risk, so applying the same checklist to all of them creates unnecessary work and leaves room for blind spots.

Vendor criticality depends on:

• The type of data they will access
• How dependent your operations are on their services
• Whether their activities fall under regulatory oversight

For example, a vendor handling customer payment data or powering a core system poses a higher risk than one supplying office equipment or handling internal training materials. If the vendor’s failure could expose sensitive data, trigger a vendor compliance issue, or disrupt day-to-day operations, they should be treated as high-risk.

To build an effective checklist, group your vendors by criticality—high, medium, or low. This makes it easier to decide how much time and effort to invest in each review. High-risk vendors typically require deeper scrutiny, including financial information analysis, data security assessments, and legal reviews. Low-risk vendors may only need a simple background check or contract validation.

Getting this step right sets the foundation for your entire due diligence process. Without it, you risk spending too much time on low-impact vendors while overlooking real vulnerabilities in more critical relationships.

Build an internal stakeholder map

An internal stakeholder map clearly outlines all the teams and individuals involved in a vendor relationship. It defines who should be consulted, who makes informed decisions, and who handles specific parts of the due diligence process.

Vendor due diligence does not happen in a silo. Legal looks at contract risk mitigation. IT checks security protocols. Finance reviews pricing and payment terms. Reviews become fragmented without a mapped view of these stakeholders, and key steps are often missed.

Start by identifying every team that interacts with potential vendors. This includes the business unit requesting the vendor, the departments responsible for compliance, and the teams that manage technical integration or financial risk. Each brings a unique lens, and their input shapes a more complete risk assessment.

Involving the right people early creates alignment. For example, security teams can flag data access concerns before procurement finalizes terms. Legal can push for stronger liability clauses before redlines begin. This prevents surprises later in the process.

Companies with coordinated, cross-functional vendor reviews are more likely to identify compliance gaps before onboarding. A stakeholder map makes this coordination possible by showing who needs to be involved and when.

Ramp helps streamline collaboration across teams by automatically linking vendor spend, contract terms, and approval workflows in one shared system. Legal, finance, IT, and procurement can all access the same vendor profile, reducing back-and-forth and keeping evaluations aligned from start to finish.

Once the map is in place, assign ownership at each stage. This ensures accountability, keeps the review moving, and avoids duplicate work. When done right, an internal stakeholder map creates structure and speed. It helps you streamline vendor reviews without cutting corners.

Set evaluation criteria aligned with your risk appetite

Before you assess any vendor, you need to define what “acceptable risk” looks like for your business. This is your risk appetite—the level of risk you are willing to take on in exchange for value or efficiency. Without clear parameters, due diligence becomes inconsistent and hard to enforce.

Your evaluation criteria should align directly with that threshold. If your company has a low tolerance for data breaches, vendors with minimal security controls should be ruled out early. If cost overruns concern you more, prioritize financial stability and pricing models.

Each vendor type should have its own set of measurable benchmarks. These might include minimum security certifications, service-level guarantees, insurance coverage, financial ratios, or past contract compliance history. The key is consistency. Every vendor in the same category should be held to the same standard.

Establishing clear criteria early reduces subjectivity and speeds up internal approvals. It also helps teams filter out service providers that do not meet baseline requirements, saving time on extensive reviews.

Core elements of a vendor due diligence checklist

A due diligence checklist is built with input from multiple teams. Together, they define what needs to be checked and why.

• Legal and corporate verification: You should confirm that the vendor is a legally registered business authorized to operate in the regions you serve. Request documents like incorporation certificates, tax identification numbers, and proof of insurance. This ensures you're working with a legitimate and accountable organization.
• Financial health assessment: Evaluate the vendor’s financial stability by reviewing audited financial statements, revenue history, and any outstanding liabilities. Vendors in poor financial health are more likely to miss deadlines, cut service quality, or default on contracts.
• Information security and data handling: If the vendor has access to sensitive data or connects to your systems, review their security policies, certifications, and incident response procedures. You should verify whether they meet SOC 2 or ISO 27001 standards and use appropriate encryption. Weak data practices put your business at risk of breaches and non-compliance.
• Regulatory compliance: Ensure that the vendor complies with any laws or regulations that apply to their industry or the services they provide. This might include HIPAA, PCI DSS, GDPR, or other frameworks. Failure to validate this can expose your business to regulatory fines or legal action.
• Environmental, social, and governance (ESG) practices: Assess how the vendor handles sustainability, labor rights, and ethical governance. Look for transparency in sourcing, workplace conditions, and board oversight. ESG misalignment can damage your brand and undermine long-term vendor relationships.
• Contractual terms and exit clauses: Review the contract for clear terms around service levels, liability limits, data ownership, and exit rights. These details define how risk is managed if the relationship breaks down. A strong contract protects your business even if the vendor fails to deliver.

Ramp simplifies contract management by automatically pulling in critical terms from vendor agreements, like renewal dates, contract length, and line-item SKUs. This gives finance and legal teams visibility into contract risks and renewal timelines without needing to dig through PDFs or emails.

How to create a vendor due diligence checklist

Most companies create their vendor due diligence checklist once and refine it over time. It’s not something you build from scratch for every new vendor. However, it does need to evolve as your business, risk environment, or regulatory requirements change.

A solid checklist becomes a repeatable framework your team can use during vendor onboarding, renewals, and periodic reviews. It keeps your evaluations consistent, avoids missed steps, and makes it easier to scale your process as vendor volume grows.

• Step 1: Define your risk categories. Start by grouping vendors based on high, medium, or low-risk levels. This classification helps you apply the right level of scrutiny without wasting time on unnecessary checks. High-risk vendors will require deeper legal, financial, and security reviews.
• Step 2: Identify core review areas. For each risk category, determine what areas need to be assessed. This includes legal verification, financial health, security practices, regulatory compliance, and ESG alignment. Keep your list focused on factors directly impacting your business or regulatory obligations.
• Step 3: Set clear pass/fail criteria. Establish what’s acceptable and what’s not for each checklist item. If a subcontractor lacks a required certification or has poor financial ratios, your team should know whether to flag, escalate, or reject. This removes the guesswork and ensures faster, more objective decision-making.
• Step 4: Assign internal owners. Make it clear who owns each part of the review, including legal, finance, IT, or procurement teams. Without defined ownership, reviews stall, and gaps appear.
• Step 5: Build workflows that match vendor types. Tailor your checklist format by vendor category. SaaS providers, logistics vendors, and consultants each carry different operational risks and require different documentation. A one-size-fits-all checklist slows your team down and misses key questions.
• Step 6: Choose a format that scales. Use a format that works across teams, ideally integrated into your vendor management platform or intake process. Manual spreadsheets create version control issues and make it harder to track status. Checklists should be easy to update, share, and review as part of a repeatable workflow.

Building smarter vendor relationships through better due diligence

Vendor due diligence helps you make better decisions at every stage of the vendor lifecycle. A clear, structured checklist gives your team the tools to evaluate vendors based on facts, not assumptions.

When you align your checklist with your company’s risk appetite, tailor it by vendor type, and involve the right stakeholders, you create a process that scales. You also reduce friction between teams and avoid delays in procurement, compliance, and legal reviews.

When done well, due diligence helps you move faster without sacrificing quality. It strengthens trust with vendors, improves contract outcomes, and ensures regulatory readiness across the board.

With Ramp, vendor due diligence does not stop after onboarding. The platform tracks vendor spending trends, monitors contract terms, and even flags underused software seats through integrations like Okta. This turns due diligence into a continuous process that helps reduce waste, improve compliance, and strengthen vendor relationships over time.