Due Diligence and Ongoing Monitoring

Hi there and thank you for your questions!

Metrics and information you should pay attention to and assess include the following:

• Balance Sheet – including cash, accounts receivable, total current assets, total goodwill and intangible assets, total assets, total debt (current and long-term), total liabilities, total retained earnings, net worth, and tangible net worth
• Income Statement – including total revenue (and segment revenue when available), total gross profit and margin, total operating income (or losses), total net income, total comprehensive income; helps you understand the company's revenue and profitability profile
• Cash Flow Statement – including cash flow from operations, investing, and financing, as well as beginning and ending cash balances. This helps understand how the vendor is funding their operations and the liquidity it has
• Ratios – including current ratio (current assets divided by current liabilities), accounts receivable days, goodwill, and intangible assets as a percent of total assets, total debt / liabilities as a percent of total and tangible net worth
• Overall qualitative notes: any one-time events, restructuring, risks identified, or commentary provided by management that is relevant to understanding the vendor's financial health; be sure to maintain a section with a few sentences or summaries highlighted here as support for the quantitative data and metrics

For public companies, a Form 10-K or 10-Q (available from the SEC) is sufficient for review. Similarly, for international public companies companies, annual reports should be used. On the other hand, to obtain documentation from a private company, you will need to add these requests into your third-party risk management program and diligence questionnaires. You should always start with asking for audited financial information. If that is not provided, company prepared financial information (such as an income statement, balance sheet, and/or cash flow statement), a financial letter speaking to the company's financial performance and health (typically signed off by a CFO or auditor / reviewer of the financials) or IRS tax returns are sufficient for reviews.

Once reviews are complete or set, reach out to the vendor to discuss any findings and next steps; include questionnaires and diligence request lists that include asks on the information highlighted here or findings that your team may find necessary. If there are additional risks that are identified, then your team should discuss the findings internally and begin to find alternative vendors that provide the same service in case the specific vendor you have assessed has issues with its financial health that cause service level disruptions. Using specific items in the contract, such as an early termination clause / opt-out clause or even minimum service level agreement levels, can help your team remedy issues with a vendor that is having financial health issues that are causing interruptions or problems with product / service delivery.

We welcome any other members in our Third Party ThinkTank to weigh in on other methods or workflows that they have found helpful when reviewing, documenting, and addressing vendor financial health!

Hi there and thank you for your questions!

Metrics and information you should pay attention to and assess include the following:

• Balance Sheet – including cash, accounts receivable, total current assets, total goodwill and intangible assets, total assets, total debt (current and long-term), total liabilities, total retained earnings, net worth, and tangible net worth
• Income Statement – including total revenue (and segment revenue when available), total gross profit and margin, total operating income (or losses), total net income, total comprehensive income; helps you understand the company's revenue and profitability profile
• Cash Flow Statement – including cash flow from operations, investing, and financing, as well as beginning and ending cash balances. This helps understand how the vendor is funding their operations and the liquidity it has
• Ratios – including current ratio (current assets divided by current liabilities), accounts receivable days, goodwill, and intangible assets as a percent of total assets, total debt / liabilities as a percent of total and tangible net worth
• Overall qualitative notes: any one-time events, restructuring, risks identified, or commentary provided by management that is relevant to understanding the vendor's financial health; be sure to maintain a section with a few sentences or summaries highlighted here as support for the quantitative data and metrics

For public companies, a Form 10-K or 10-Q (available from the SEC) is sufficient for review. Similarly, for international public companies companies, annual reports should be used. On the other hand, to obtain documentation from a private company, you will need to add these requests into your third-party risk management program and diligence questionnaires. You should always start with asking for audited financial information. If that is not provided, company prepared financial information (such as an income statement, balance sheet, and/or cash flow statement), a financial letter speaking to the company's financial performance and health (typically signed off by a CFO or auditor / reviewer of the financials) or IRS tax returns are sufficient for reviews.

Once reviews are complete or set, reach out to the vendor to discuss any findings and next steps; include questionnaires and diligence request lists that include asks on the information highlighted here or findings that your team may find necessary. If there are additional risks that are identified, then your team should discuss the findings internally and begin to find alternative vendors that provide the same service in case the specific vendor you have assessed has issues with its financial health that cause service level disruptions. Using specific items in the contract, such as an early termination clause / opt-out clause or even minimum service level agreement levels, can help your team remedy issues with a vendor that is having financial health issues that are causing interruptions or problems with product / service delivery.

We welcome any other members in our Third Party ThinkTank to weigh in on other methods or workflows that they have found helpful when reviewing, documenting, and addressing vendor financial health!

Hi there and thank you for your questions!

Metrics and information you should pay attention to and assess include the following:

• Balance Sheet – including cash, accounts receivable, total current assets, total goodwill and intangible assets, total assets, total debt (current and long-term), total liabilities, total retained earnings, net worth, and tangible net worth
• Income Statement – including total revenue (and segment revenue when available), total gross profit and margin, total operating income (or losses), total net income, total comprehensive income; helps you understand the company's revenue and profitability profile
• Cash Flow Statement – including cash flow from operations, investing, and financing, as well as beginning and ending cash balances. This helps understand how the vendor is funding their operations and the liquidity it has
• Ratios – including current ratio (current assets divided by current liabilities), accounts receivable days, goodwill, and intangible assets as a percent of total assets, total debt / liabilities as a percent of total and tangible net worth
• Overall qualitative notes: any one-time events, restructuring, risks identified, or commentary provided by management that is relevant to understanding the vendor's financial health; be sure to maintain a section with a few sentences or summaries highlighted here as support for the quantitative data and metrics

For public companies, a Form 10-K or 10-Q (available from the SEC) is sufficient for review. Similarly, for international public companies companies, annual reports should be used. On the other hand, to obtain documentation from a private company, you will need to add these requests into your third-party risk management program and diligence questionnaires. You should always start with asking for audited financial information. If that is not provided, company prepared financial information (such as an income statement, balance sheet, and/or cash flow statement), a financial letter speaking to the company's financial performance and health (typically signed off by a CFO or auditor / reviewer of the financials) or IRS tax returns are sufficient for reviews.

Once reviews are complete or set, reach out to the vendor to discuss any findings and next steps; include questionnaires and diligence request lists that include asks on the information highlighted here or findings that your team may find necessary. If there are additional risks that are identified, then your team should discuss the findings internally and begin to find alternative vendors that provide the same service in case the specific vendor you have assessed has issues with its financial health that cause service level disruptions. Using specific items in the contract, such as an early termination clause / opt-out clause or even minimum service level agreement levels, can help your team remedy issues with a vendor that is having financial health issues that are causing interruptions or problems with product / service delivery.

We welcome any other members in our Third Party ThinkTank to weigh in on other methods or workflows that they have found helpful when reviewing, documenting, and addressing vendor financial health!