Vendors are critical to the success of most organizations – but they also pose considerable risk. The trick is to make sure your vendors have what they need to perform well without compromising your company in the process. Before you hand over the keys to the kingdom, here’s a look at where vendors could make you vulnerable.

Strategic risk. Strategic risk arises from bad business decisions or decisions that don’t support your own strategic goals. Choose vendors that operate in a manner consistent with the way you do business.

Reputational risk. Your reputation is in the hands of your vendors – and all it takes is one bad interaction that goes viral to inflict lasting damage. Do your due diligence upfront and contract with vendors you trust. A history of complaints or bad press about a vendor is a big red flag.

Operational risk. Operational risk is the risk that your organization will experience a problem if a vendor’s processes or people fail. Ensure business continuity by creating a contingency plan in the event a failure does occur and conduct regular status checks to keep everything on track.

Financial risk. Unexpected costs or lost revenue from a vendor can negatively impact your bottom line. Keep a close eye on the budget and contract terms to minimize financial risk. And include certain vendors – like those that process financial transactions – in your operational risk management strategy.

Compliance risk. You could be held accountable if a vendor violates government or industry laws, rules, or regulations. Make sure you have the proper information and processes in place to evaluate how well your vendors are complying with the appropriate legal regulations – as well as any other requirements you have for doing business with your company.

Cyber risk. Catastrophic damage can happen in the blink of an eye. Spell out security guidelines in your contracts and know who has access to what information. And constantly monitor your vendors to make sure proper protocols are being followed at all times.

There is no shortage of risk when it comes to vendors. But to be forewarned is to be forearmed.  And doing business with a vendor will be a little less risky.