What Is Vendor Credentialing?

Terry Masters

Vendor credentialing is the process of establishing the qualifications of an outside supplier of goods or services. The actual credentialing procedure will differ depending upon the industry and the context in which the vendor is engaged. Credentialing is basically used to assess the background and legitimacy of a vendor when the vendor is relied upon to contribute to the supply chain.

A hospital's medical supplies are typically ordered from a pre-approved vendor when they need to be restocked.
A hospital's medical supplies are typically ordered from a pre-approved vendor when they need to be restocked.

Engaging outside vendors is an important part of doing business and can be relevant in a variety of contexts. For example, a special event might engage vendors to supply entertainment goods and services. A local subsidiary might have a list of approved vendors that its corporate headquarters has approved to provide office supplies. The government might maintain a list of vendors that have been screened for conflicts and meet certain eligibility requirements. In each instance, vendor credentialing would be a customized process with the common goal of making sure that outside suppliers have the appropriate qualifications to conduct business.

Vendor credentialing will typically consist of an objective evaluation of an outside supplier’s experience, training, licensing, and ability to provide the needed goods or services according to specifications. As part of the process, vendors usually have to complete an application and provide business references and certain documents as proof of legitimacy. Vendors sometimes have to post a bond to guarantee performance according to terms. Usually, vendors have to go through credentialing once as an initial qualification procedure, and are then part of an approved pool. In some industries, however, credentialing happens on a periodic basis and ensures vendors remain compliant with qualification requirements.

Certain credentialing situations require a vendor not only to prove the legitimacy of the company but also to provide information on its principal owners and employees. The additional vetting ensures that the people running the company have no concerns or conflicts in their backgrounds that will impact the company’s approval as a vendor or cause problems or embarrassment. Government vendor applications typically request this type of information to guard against government corruption and politicians using vendor contracts to enrich themselves, their friends, or their family members.

Vendor credentialing is of particular importance in the healthcare industry. Salespeople from outside companies seek vendor affiliation with hospitals to sell their products and equipment. With a lack of uniform standards and the time and cost of qualifying each vendor individually, a cottage industry has developed to provide outside vendor credentialing management or in-house management through customized software.

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