Vendor Due Diligence Checklist: Complete Third-Party Risk Assessment Guide 2025
Third-party vendor breaches cause 60% of data incidents, with average costs of $4.5M per breach involving vendor access, according to Ponemon research. Yet 54% of organizations lack formal vendor due diligence processes—creating massive third-party risk exposure.
Peony streamlines vendor assessment: organize vendor security questionnaires, track document review, collect compliance certifications securely, and maintain audit trails. Purpose-built for vendor risk management.
Here's your complete vendor due diligence checklist for 2025.
Vendor DD Checklist Overview
| Category | Priority | Key Documents |
|---|---|---|
| Financial | High | Financial statements, credit reports, insurance |
| Security & Compliance | High | SOC 2, ISO 27001, security policies, GDPR |
| Operational | High | SLAs, performance metrics, business continuity |
| Legal | High | Contracts, privacy policies, NDAs, IP rights |
| References | Medium | Client references, certifications, reviews |
| Technical | High | Architecture, security protocols, DR plans |
Financial Assessment
Evaluate financial stability:
Required documents:
- Audited financial statements (2-3 years)
- Credit reports and ratings (Dun & Bradstreet)
- Insurance certificates (liability, E&O, cyber)
- Payment terms and conditions
- Bankruptcy or litigation history
- Revenue and growth metrics
Red flags:
- Declining revenue or profitability
- High debt levels
- Credit rating downgrades
- Recent bankruptcies
- Insurance gaps
- Financial instability indicators
Assessment:
- Can vendor remain viable?
- Financial strength adequate?
- Insurance coverage sufficient?
- Payment terms acceptable?
Security & Compliance
Critical for data/system access vendors:
Security certifications:
- SOC 2 Type II report (current, less than 12 months)
- ISO 27001 certification
- PCI DSS (if handling payments)
- HIPAA compliance (if healthcare data)
- FedRAMP (if government)
Security documentation:
- Information security policies
- Incident response procedures
- Business Associate Agreement (healthcare)
- Data Processing Agreement (GDPR)
- Security audit reports
- Penetration test results
- Vulnerability management process
Data protection:
- Data handling procedures
- Encryption practices (transit and rest)
- Data retention policies
- Data deletion procedures
- Backup and recovery
- Data residency/sovereignty
Compliance:
- GDPR compliance documentation
- CCPA compliance (California)
- Industry-specific regulations
- Privacy impact assessments
- Compliance certifications
Red flags:
- No security certifications
- Recent security breaches
- Unwilling to provide SOC 2
- No DPA available
- Vague security practices
- No encryption
Operational Capabilities
Assess delivery capability:
Service level agreements:
- Uptime commitments (99.9%+ for critical systems)
- Response time SLAs
- Resolution time commitments
- Performance penalties
- Service credits
Performance metrics:
- Historical uptime data
- Incident frequency
- Mean time to resolution (MTTR)
- Customer satisfaction scores
- SLA compliance rate
Business continuity:
- Business continuity plans
- Disaster recovery procedures
- Backup systems and testing
- Redundancy architecture
- Failover capabilities
- Recovery time objective (RTO)
- Recovery point objective (RPO)
Quality control:
- Quality assurance processes
- Testing procedures
- Change management
- Continuous improvement programs
Staffing:
- Team qualifications and certifications
- Training programs
- Turnover rates
- Escalation procedures
- 24/7 support availability
Legal & Contractual
Review legal framework:
Contract terms:
- Master services agreement (MSA)
- Terms of service
- Service level agreements
- Pricing and payment terms
- Contract duration and renewal
- Termination clauses and notice periods
Liability and indemnification:
- Liability limitations
- Indemnification provisions
- Insurance requirements
- Warranty terms
Data and IP:
- Data ownership rights
- IP rights and licensing
- Confidentiality provisions
- Non-compete clauses (if applicable)
- Data return/deletion on termination
Legal standing:
- Incorporation documents
- Litigation history
- Regulatory actions
- Dispute resolution procedures
- Governing law and jurisdiction
References & Reputation
Verify track record:
Client references:
- 3-5 similar customer references
- Reference call notes
- Customer satisfaction validated
- Renewal/retention rates
- Case studies
Market reputation:
- Online reviews (G2, Capterra, Trustpilot)
- Industry certifications and awards
- Analyst reports (Gartner, Forrester)
- News and media coverage
- Social media presence
Questions for references:
- How long using vendor?
- Service quality and responsiveness?
- Would you recommend?
- Any issues or concerns?
- Value for money?
- Renewal plans?
Technical Infrastructure
For technology vendors:
System architecture:
- Architecture diagrams
- Technology stack documentation
- Scalability assessment
- Performance capabilities
- Integration options
Security protocols:
- Access management
- Network security
- Application security
- Security monitoring
- Vulnerability management
Disaster recovery:
- DR plans and procedures
- Backup strategies
- Geographic redundancy
- Failover testing
- RTO/RPO commitments
Vendor DD Process
Phase 1: Initial screening (Week 1)
- Review vendor website and materials
- Preliminary fit assessment
- Initial security check
- Reference vendor database
- Create shortlist
Phase 2: Detailed evaluation (Week 2-3)
- Request documentation
- Review security certifications
- Assess financial stability
- Check references
- Technical assessment
Phase 3: Risk analysis (Week 4)
- Compile findings
- Risk categorization
- Gap identification
- Remediation requirements
- Decision recommendation
Phase 4: Contracting (Week 5-6)
- Negotiate terms
- Review legal documentation
- Finalize SLAs
- Execute agreements
- Onboarding planning
Using Peony for Vendor DD
Peony streamlines vendor assessment:
Organize vendor materials:
- Create vendor data room
- Request all documentation
- Track vendor submission
- Review systematically
Track review progress:
- Assign team members
- Monitor document review
- Track completion
- Identify gaps
Maintain records:
- Archive vendor responses
- Document assessment
- Store certifications
- Audit trail complete
Result: Efficient, documented vendor due diligence process.
Conclusion
Vendor due diligence protects organizations from third-party risks across financial, security, operational, and compliance dimensions. Systematic assessment using comprehensive checklists identifies vendor risks before they become business problems.
Peony enables efficient vendor DD by organizing vendor documentation, tracking review progress, and maintaining complete audit trails—supporting informed vendor selection decisions.
Streamline vendor due diligence: Try Peony