You’ve shopped for a new tech vendor or a third party collection agency. You’ve been through the onboarding process. You’ve set the expectations. Now, you need to ensure that your vendor audit / oversight program for your new vendor partner works as well as it could. Poorly planned and structured audits will not only prevent you from assessing your vendors' performance and finding any potential risk, but they could compromise your relationship with that vendor, too.
How can collections & recovery executives make sure their vendor partner audits are successful?
The frequency, type and specificity of an audit may vary, but there are key practices creditor executives in charge of vendor management can use in audits that can promote successful vendor relationships, help creditors spot serious issues quickly, and get the insight they need from this critical oversight tool.
How frequently should vendor partner audits be conducted?
Every organization will have a different calculation for which vendor partners they audit, the frequency of those audits,and whether those audits are onsite or not. Audits, even if they are remote, should happen annually at a minimum for all vendors regardless of their level of risk.
When should you use onsite audits for your vendor partners?
Remote audits can happen through a detailed checklist and require the vendor partners to provide examples that prove they are following the policies and procedures.
However, if a vendor touches consumer data (e.g., a third party collection agency), if your organization spends a lot of money with that vendor (e.g. a telephony provider), or if the vendor is considered “high risk” (e.g. they’ve had a number of findings previously), then audits should almost always be onsite.
What new vendor setup best practices can make collection & recovery audits successful?
The term audit doesn't produce fuzzy feelings for either the collections & recovery vendor or the creditor who is doing the auditing. But audits don't have to be adversarial. Both parties involved should go into them with open minds. In fact, audits should be seen as an opportunity by collections & recovery vendors to prove their worth, even if an audit leads to some findings.
How creditors approach the audit will also factor in the success of that audit, too. Vendor management is a two-way street and a healthy vendor/creditor relationship follows a shared risk/shared success model. What can you do to set up your vendor audit for success? Provide adequate support to your vendors before the audit.
Here are three ways creditor collections & recovery executives support their vendor partners in advance of an audit.
- Provide a specific agenda and checklist based on your contract. All of your expectations should be laid out in a manner that allows a quick, efficient audit.
- Give your vendor partner adequate time to prepare. Sending out the agenda and expectations with only a few days’ or a week’s notice is a recipe for disaster. Your vendor partner needs time to get all of their documentation together. And since many companies are allowing remote or hybrid work schedules, they may need time to get the correct staff scheduled for your visit. Each contract should specify how much notification is required prior to an audit based on the vendor’s risk calculation.
- Highlight new policies and regulations. Call out anything that is new since your last vendor audit to give your partner ample time to gather evidence that they are applying those policies in their operations.
Once you’ve provided an agenda, given your vendor partner ample time to prepare, and called out new parts of your audit, it’s the vendor’s turn to shine as a good partner. The goal of the audit is for them to prove to you, their creditor-client, that they are performing as promised based on your contract with them.
Key signals to look for in any collections & recovery vendor audit
- Organized and prepared vendors are likely operating in alignment with expectations. If you’ve provided a specific agenda with enough detail, your vendor partner should be able to quickly provide evidence that they are following each policy and procedure without much, if any, back and forth. Being organized and prepared means it's likely that they are applying your policies and procedures as part of their normal operations, not just ahead of the audit.
- Disorganization might signal deeper problems - you'll need to look for them. Your vendor partner should be able to have everything ready and clearly laid out prior to your visit. If they don’t, it might mean deeper issues. For example, if their procedures aren’t well documented and they are relying on employees to convey how processes get done, that’s a signal of inconsistency and deserves a deeper look at their operations.
- Any surprise is a bad sign. In a perfect world, audits never yield findings and vendor partners always operate within your policies. But not every vendor audit is going to be clean, especially when it comes to vendors who are handling more complex tasks, like third party collections agencies. The pre-audit agenda and checklist you provide should be enough for your vendor partner to discover any weaknesses or potential findings, and they should alert you to them as soon as possible, to give time for remediation. Nothing should be a surprise to you during the audit.
Taking these steps when auditing your collections & recovery vendor partners will help mitigate risk, get you better information, and likely create a better relationship with your vendors.
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