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Since several duties may be outsourced to vendors such as loan application processing, underwriting, marketing, payment processing, debt collection, credit checks, and technology support, merchant cash advance companies need to engage reliable and trustworthy third-party vendors. Third-party vendor compliance is one of the most effective ways to demonstrate that your company is law-abiding and has invested the appropriate time and resources into guaranteeing compliance and that customer information will be safeguarded.

Why Are Third-Party Vendors So Important?

Third-party vendors can either be a great advantage for merchant cash advance companies or they could potentially make companies face more compliance risks and negative public exposure. Engaging third-party vendors whose operations, procedures, and security measures cannot be guaranteed pose a risk of losing sensitive company and customer information and exposing that information to a breach.

It is for these reasons that a carefully constructed third-party vendor compliance program is essential. Third-party vendors that pose an IT risk to the company are especially difficult to analyze because of their complex and sophisticated technologies that constantly and quickly change. Compliance programs are necessary because they perform a wide array of important activities to protect company and customer information and operations - some of which may include credit score checks and repayment analysis to indicate whether a particular merchant cash advance recipient will be able to repay the advance in time.

Another benefit of third-party vendor compliance is that a merchant cash advance company may become eligible for contracts, jobs, or customers that they otherwise would not have been eligible for. Some companies or customers may look for merchant cash advance companies that use these compliance programs to know that they have taken the time to establish and prioritize their security policies.

Which Operations Can be Performed by Third-Party Vendors?

Third-party vendor compliance will need to consider the impact that compliance obligations will have on each third-party relationship. Below is a list of several responsibilities and activities of third-party vendors that need to be constantly and effectively supervised for their reliability and compliance:

• Performing client creditworthiness or debt repayment analyses
• Disbursing and depositing funds to clients or clients' banks
• Repayment collection, debt collections, and payment reminders to clients
• Approval or denial of funding requests

If a merchant cash advance company decides to perform a major third-party vendor function internally, the company will need to have personnel dedicated to monitoring and overseeing these operations-usually done by forming a third-party vendor management team.

Characteristics of a Reliable Third-Party Vendor

There are certain key characteristics of reliable third-party vendors to pay close attention to in making your decision as to which third-party vendor to outsource your company's needs to.

• They have effective and reasonable security policies in place
• They do not make changes to the company's environment, applications, or system without seeking approval of the merchant cash advance company first
• Their security and compliance programs are up-to-date and reflect recent legal and regulatory changes, technological innovations, industry standards, and compliance standards
• The third-party vendor is able to promptly adapt and update its security policies and programs and the merchant cash advance company has access to those policies and programs for its review
• There are written contractual provisions that specify the third-party vendor's rights and obligations as well as limitations of the services to be provided

How Do I Properly Monitor the Third-Party Vendor and its Policies?

Once the merchant cash advance company has decided on a reliable and trusted third-party vendor, it is important that the company continues to monitor its compliance operations. Companies often mistakenly assume that once a trusted third-party vendor has been selected, their operations can run on autopilot and without careful consideration or oversight. This could lead to grave security consequences such as loss of customer data, breaches in confidentiality, or worse.

Merchant cash advance companies that consistently supervise the reliability of their third-party vendors stand a greater chance of minimizing liability, government enforcement actions, penalties, and the loss of company data or breaches. Simply outsourcing certain functions to third-party vendors without follow up security inspections opens a wide window of opportunity for malicious actors to infiltrate the company's most important information.

Below are some recommendations to help minimize company liability in the event that a third-party vendor breaches their agreement:

• Avoid delegating all third-party compliance responsibilities to third-party vendors
• Make sure that all obligations, expectations, and understandings are memorialized in a written third-party vendor agreement
• Insist on putting certain conditions in the third-party vendor agreement that third-party vendors must satisfy to be able to provide its services to your company
• Regularly perform independent security checks to the company's and third-party vendor's technology systems, platforms, and applications
• Schedule and perform annual evaluations and assessments to determine whether your company should stay with the third-party vendor or seek another one

Conclusion

Third-party vendor compliance programs and a team to enforce and monitor these programs is crucial to a successful merchant cash advance company. The trick is to continually monitor and update the company's third-party compliance programs so that breaches or compromises in customer and company data can be mitigated or even completely avoided.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.