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Marketplace Best Practices
July 14, 2022

5 Ways to Vet Your Marketplace Vendors


Think of the last time you had a poor Amazon experience. Did you fault Vendor for your flimsy kitchen curtains? More than likely, you blamed Amazon.

Good or bad, marketplace buying experiences reflect on the marketplace operator, which is why choosing your vendors wisely is so important.

Vendors can make or break transactions, stimulate or stunt repeat business, and build or diminish trust in your marketplace. Whether you found vendors for your multi-vendor marketplace or they came to you, how can you ensure they'll be good for business?

Vetting Marketplace Vendors 101

Before we get into how to vet your vendors, let’s briefly go over why you want to invest the time and effort to vet them.

Vendor vetting serves to:

1.    Ensure alignment between your business objectives and service standards

2.    Facilitate positive buying experiences for customers

3.    Defend your buyers against fraudsters

4.    Protect your marketplace from misrepresentation

5.    Shield your reputation from harm

Deciding on the vetting mechanisms you’ll use is also crucial for establishing operations when building your marketplace. Vetting vendors might take substantial human effort, tech investment, or third-party support.

5 Ways to Vet Marketplace Vendors

Vetting vendors is part of effective vendor management. When vetting vendors for your marketplace, your goal is two-fold: First, you want to confirm the vendor’s legitimacy and, second, determine if they’re a good fit.  

Of course, not every vendor vetting method will apply to every marketplace model. Thoroughly screening qualifications might be critical for a brain surgeon marketplace but not as necessary for a flip flop marketplace. Just keep that in mind when you’re making decisions.

#1: Have an in-person or video call

Think about your standard job interview process. You wouldn’t hire an employee solely based on an aptitude test, even if they got a perfect score. What about culture fit? What about personality? What about trust? You’re going to work with this person day-in and day-out after all. An interview is a better way to get a feel for this person, how they communicate and if they inspire confidence in you. The same gut-check is a valuable form of vendor due diligence.

Vetting vendors through an interview process, whether in-person or by phone, can help you understand how they’ll perform as one of your suppliers — and if there are any red flags. You’re about to enter a meaningful business relationship, after all.

Human-to-human connection also goes a long way for issue resolution down the line. Suppose there’s a service issue on the vendor side or a logistical issue on your operator’s side. In that case, the human relationship you establish during an interview can help you get from problem-identified to problem-solved much faster.

Plus, there’s just something to be said about looking someone in the eye.

Vendor interview questions to consider:

  • Tell me about your product/service.
  • Why did you start?
  • How long have you been in business?
  • What’s been your greatest challenge and greatest success?
  • Where do you source your products from?
  • Where do you currently offer your services?
  • How do you measure success? (Sales? Positive reviews?)
  • What is the most important part of managing your business or services for you?
  • Where else have you offered your products and services in the past?
  • How long have you sold through that platform?
  • Have you encountered any problems through that platform, and how have you or the other operator solved them?
  • Do you have references you can share?

#2: Review vendor performance on other platforms

Just as Facebook killed the blind date, a little Googling can go a long way in deciding if you have a future with a vendor.

To start your sleuthing, look at the vendor’s business reviews on other platforms, like their website, Google My Business page, Facebook Page, or Yelp. If the vendor is an individual (think: Etsy creator or AirBnB host), you could take a more traditional approach by reviewing their professional LinkedIn profile, portfolio, or even asking for their resume.

#3: Establish KYV, AML, and anti-fraud procedures

While marketplaces have opened the doors for small vendors to be part of big business, they’ve also attracted fraudsters, money launderers, scammers, terrorists, chargeback artists, and a slew of other unsavory characters.

As a result, many regional legislators now require marketplaces to perform legal vendor checks to protect businesses and buyers. These are known as Know Your Vendor (KYV) or Know Your Business (KYB) checks, and they include vetting mechanisms for anti-money laundering (AML) and anti-fraud. Even if it’s not the law, it’s probably a good idea to have safeguards in place.

The most well-established example of legislation is the EU’s payment services directive (PSD).

How KYC and KYB checks work:

If your vendor is an individual: Like Know Your Customer (KYC) checks, KYV is a set of procedures businesses implement to assess a vendor’s risk and comply with anti-money laundering laws. KYV checks seek to verify the following information:

·      The vendor’s identity

·      Due diligence on the vendor’s financial activities

·      AML checks where you assess any money laundering risks associated with the vendor

If your vendor is a company: Know Your Business (KYB) checks paint a picture of the company’s structure, operational model, and executive hierarchy. The goal is to expose any executive players that could pose a risk.

KYV and KYB checks look out for:

  • Large cash transactions
  • Multiple unexplained transactions
  • Transactions involving suspicious individuals or businesses
  • Transactions linked to high-risk areas
  • Transactions that don’t make sense for the business

#4: Full comprehensive due diligence

Outsourcing due diligence is probably the most expensive and stringent way to perform vendor due diligence. Typically used by large businesses, third-party risk-assessment services take the onus of vetting vendors off marketplace operators.

Vendor risk assessment services take a formal, thorough approach to vendor vetting, which can include:

  • Detailed questionnaires
  • Documentation and evidence collection
  • Threat intelligence analysis
  • Risk mitigation management
  • Validation testing and reporting

Many vendor risk management companies will also handle the legal aspects of onboarding, like SLAs, vendor contracts, and even issue remediation.

#5: Certification validation

There are many cases where you’d want to vet the credentials of your vendors. This is especially true for service marketplaces where you may be making connections to doctors, personal trainers, academics, or accountants. But also true of product marketplaces selling a specific niche of products - think "green" marketplaces requiring a certain accreditation to sell on the platform.

A simple LinkedIn search won’t due. Depending on the accreditation, you’ll have to verify vendor qualifications in various industry databases, licensing boards, or regional associations.

If that’s not available, you might have to contact the certifying body to confirm the vendor’s past enrollment and graduation. Unfortunately, this is another task isn't easily automated, but is worth the effort for liability protection.

Vendor issues are inevitable

Even with the most careful due diligence and stringent verification process, vendor issues will inevitably occur as you grow.

When vetting fails, it’s vital to ensure your marketplace has:

  • Operational workflows that enable returns, refunds, or remediation
  • Top-notch customer service representatives that can quickly remedy any issues
  • Customer reviews and vendor ratings that empower buyers to make informed purchasing choices
  • The legal framework to protect your business from liability

Make sure you are using tools like reviews to help find bad actors among your vendors and have vendor standards in place to clearly state the expectations you have of your marketplace vendors.

You’ll never have total control of your vendors, but you can establish proactive and reactive operations to ensure you sign on and keep on trustworthy vendors that reflect well on your marketplace.

If you're interested in learning more about getting vendors for your multi-vendor marketplace, check out these posts:

How to Get Vendors to Join Your Multi-Vendor Marketplace

How to Find Vendors for Your Multi-Vendor Marketplace

Ready to Get Started?

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