The Procurement Glossary » Due Diligence

Due Diligence

Suppliers & Vendors

Definition

The investigation of a supplier's legitimacy, capability, financial health and compliance before engaging it.

Explanation

Due diligence protects against fraud, instability and compliance breaches. Depending on risk, it ranges from basic identity and sanctions checks to deep financial, ethical and site assessments. It is core to onboarding and ongoing risk management.

Example

Due diligence on the new overseas supplier includes sanctions screening, financial checks and an audit of its factory.

Related terms

• Supplier Risk — The exposure a buyer faces from a supplier's potential failure — financial, operational, compliance or reputational.
• Supplier Onboarding — The process of setting up a new supplier to trade — collecting details, verifying compliance and adding it to systems.
• Know Your Supplier (KYS) — The practice of verifying and continually understanding who your suppliers are, their ownership and their risk profile.
• Financial Stability Assessment — An evaluation of a supplier's financial health to gauge the risk that it fails or cannot meet commitments.

Frequently Asked Questions

What is Due Diligence?

The investigation of a supplier's legitimacy, capability, financial health and compliance before engaging it. Due diligence protects against fraud, instability and compliance breaches. Depending on risk, it ranges from basic identity and sanctions checks to deep financial, ethical and site assessments. It is core to onboarding and ongoing risk management.

Can you give an example of Due Diligence?

Due diligence on the new overseas supplier includes sanctions screening, financial checks and an audit of its factory.

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