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Third Party Thursday

April 15, 2021

5 Acceptable Financial Documents If a Vendor Is Privately Held

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Obtaining documentation from privately held vendors can sometimes prove challenging. In this podcast, you will learn your options and what financial documents you can request.

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Podcast Transcript

Hi – my name is Mike with Venminder. Mike-Campbell-circle

In this 90-second podcast, you’re going to learn about the acceptable level of financial documentation to request from privately held vendors.

At Venminder, vendor financial assessments are performed by our team of experts and certified professionals, such as CPAs, on a daily basis.

We know that at times it can be difficult to obtain complete financial information from a privately held vendor. Here are 5 documents that are sufficient to help perform the necessary financial assessment and why:

  1. First, third-party prepared financial statements. Organizations may outsource audits, reviews or compilations. They provide key financial information and are prepared by a vendor’s third-party accountant. Audits serve as the most complete and rigorous information on the organization's financial performance.

  2. Second, an organization’s internally prepared financial statements. These are unaudited financial statements directly from the organization and help provide insight into a vendor’s financial viability. However, they tend to lack commentary from the vendor and/or their management.

  3. Third, an organization’s annual tax filing – such as the IRS Form 1120. Filed with the IRS annually, these tax forms provide a snapshot of an organization’s financial performance. There’s enough data for someone to get a sense of a vendor’s revenue, expenses, profitability and overall financial standing.

  4. Number four is management’s discussion and analysis, also known as a financial health letter. It’s prepared by the vendor’s management team and speaks to the financial health, performance and trends of the organization. Keep in mind that it typically has limited financial data.

  5. Finally, the fifth document that suffices is the organization’s credit report. When the vendor fails to provide any of the above, a Dun & Bradstreet or other credit report can be used.

Those are five helpful documents that’ll give you insight into a vendor’s financial performance, even if privately held. I hope you found this podcast insightful.

Thanks for tuning in; catch you next time!

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