RFP Process for Significant Vendors

For any vendor relationship exceeding ₹5L per year or involving access to customer data, infrastructure, or critical operations, run a structured Request for Proposal (RFP) process:

1. Define requirements: Document your technical requirements, SLA expectations, compliance requirements (GST registration, ISO certifications, DPDP Act compliance), and budget range in writing before contacting vendors
2. Identify 3–5 candidates: Use LinkedIn, industry directories (IndiaMART for hardware/manufacturing, G2/Capterra for SaaS), and peer founder recommendations (most reliable for service vendors)
3. Issue the RFP: Send a brief RFP document (2–3 pages maximum) requesting pricing, SLAs, reference customers, team profiles, and compliance certifications. Set a response deadline of 5–7 business days.
4. Evaluate proposals: Score each proposal across price, capability, compliance, references, and risk. Use a weighted scoring model — price should typically be 20–30% of the weight, not 100%.
5. Reference checks: Call 2–3 existing customers of the shortlisted vendor before awarding. Ask specifically: "What has gone wrong, and how did they respond?" — not "Are you happy with them?"

Due Diligence Checklist for All Vendors

• GST registration certificate (verify on GST portal — gst.gov.in → Search Taxpayer)
• PAN card (mandatory for TDS deduction and tax filing)
• MSME/Udyam registration certificate (if applicable — triggers MSMED Act payment obligations)
• Professional qualification certificates (ICAI registration for CAs, Bar Council registration for lawyers)
• Recent bank statement or financials (for vendors handling significant capital or infrastructure)
• Signed confidentiality/NDA agreement before sharing any proprietary information during evaluation

MSA (Master Services Agreement) — Key Clauses

Every significant vendor relationship must be governed by a signed MSA, supplemented by individual SOWs (Statements of Work) for each engagement. An MSA without a SOW is ambiguous; a SOW without an MSA lacks legal backbone. Key MSA clauses to negotiate:

• Payment terms: Push for 30–45 day net payment terms (Net-30 or Net-45) — do not accept "payment on invoice" which effectively means immediate payment and harms your cash flow. For large agencies, 50% upfront and 50% on completion is standard; push back to 30% / 70% with milestones.
• IP ownership: All work product created under the contract must be explicitly assigned to your company. "Work made for hire" language is the standard — without it, the vendor may have residual IP claims on code, creative assets, or designs they produce for you.
• Termination: Negotiate a 30-day termination for convenience clause (your right to exit with 30 days notice, no cause required). Avoid auto-renewal clauses that lock you into multi-year commitments — or cap them at 12-month auto-renewals with 60-day opt-out windows.
• Liability cap: Negotiate vendor liability for damages at a minimum of 12 months' fees paid — the default in most vendor templates caps their liability at 1 month's fees, which is inadequate for any mission-critical vendor.
• Data processing: Any vendor accessing customer personal data must sign a Data Processing Agreement (DPA) consistent with India's DPDP Act 2023. Define their role as Data Processor, your obligations as Data Fiduciary, and their security obligations.

SLA (Service Level Agreement) — What to Demand

• Uptime SLA: 99.9% minimum for any infrastructure vendor (cloud, hosting, payment gateway). Calculate what 0.1% downtime means in annual hours (8.7 hours) — know the impact on your business before signing.
• Response time SLA: Distinguish between acknowledgement time (within 1 hour for P1 issues) and resolution time (within 4 hours for P1, 24 hours for P2). Most vendors agree to acknowledgement but not resolution SLAs — push for both.
• Credits for SLA breach: Standard is 10% service credit for each percentage point of uptime missed below the SLA threshold. Without credits, an SLA is just a promise.
• Escalation matrix: Define who you call when the standard support channel fails — account manager, VP of support, CEO contact for critical escalations. Get these names and direct numbers in writing before a crisis occurs.

GST Registration Verification

Before making any payment to an Indian vendor, verify their GST registration status on the GST portal (gst.gov.in → Search Taxpayer → Enter GSTIN). Key checks:

• Is the GSTIN active? (Status should show "Active" — suspended or cancelled GSTINs cannot issue valid tax invoices)
• Does the trade name match the vendor's invoice? Mismatches can trigger ITC denial during GST audits
• Is the vendor filing returns regularly? Check on the GST portal — a vendor who has not filed GSTR-1 for 2+ months cannot pass ITC credit to you, which means you will lose the input tax credit you paid

TDS on Vendor Payments — Key Sections

• Section 194C: 1% (individual/HUF) or 2% (companies) TDS on payments to contractors for work contracts — covers marketing agencies, logistics, and most service contracts. Threshold: ₹30,000 single payment or ₹1L aggregate per year per vendor.
• Section 194J: 10% TDS on professional/technical services fees — applies to CA, lawyer, consultant, IT service provider payments. Threshold: ₹30,000 per year per vendor.
• Section 194Q: 0.1% TDS on purchases from Indian residents exceeding ₹50L per year from a single supplier — relevant for hardware and manufacturing-heavy startups.
• TDS payment deadline: TDS deducted must be deposited to the government by the 7th of the following month (except March — deadline is April 30). Late payment attracts interest at 1.5% per month.
• Form 26Q / 27Q: File quarterly TDS returns (Form 26Q for domestic vendors, 27Q for foreign vendors). Issue Form 16A to each vendor annually — this is their certificate of TDS deducted.

MSME Vendor Benefits — The Delayed Payment Risk

If your vendor is registered under the MSMED Act (MSME/Udyam registration), the MSMED Act mandates payment within 45 days of acceptance of goods/services (or 15 days if no written agreement). Delayed payment to registered MSMEs attracts interest at 3x the RBI bank rate (currently ~16.5% per annum) — significantly higher than bank loan interest rates. Key actions:

• Ask all Indian vendors for their Udyam Registration Number at the time of onboarding
• Track payment due dates separately for MSME vendors vs non-MSME vendors
• If you are an MSME yourself, you can report delayed payment from your customers to the MSME Samadhaan portal — a powerful collection tool
• Note: MSME delayed payment interest is NOT a deductible business expense under Section 23 of MSMED Act — it hits your P&L directly with no tax benefit

Dependency Analysis

Map every vendor in your stack against two dimensions: (1) Criticality — how severely would your operations be impacted if this vendor disappeared overnight? (2) Replaceability — how quickly and easily could you switch to an alternative? Vendors that are both high-criticality and low-replaceability are your highest-risk dependencies and must have formal contingency plans.

Single-Vendor Risk

Backup Vendor Strategy

For every critical vendor, maintain a "warm backup" — a pre-qualified alternative vendor with whom you have completed due diligence, signed an NDA, and run at least one test engagement. A warm backup can be activated in days; finding and qualifying a new vendor from scratch takes 4–8 weeks. The incremental cost of maintaining a backup vendor relationship is minimal — typically one small pilot project per quarter to keep the relationship warm and the capability verified.

SLA Scorecard — Monthly Tracking

For all vendors with contractual SLAs, maintain a monthly SLA scorecard tracking:

• Uptime / availability: Actual vs contracted uptime percentage
• Response time: Average and P95 response time for P1, P2, P3 incidents
• Resolution time: Average time from ticket creation to resolution by priority level
• Invoice accuracy: % of invoices received without errors (mismatched amounts, incorrect GST, wrong TDS deduction)
• Delivery SLA: For logistics — % of shipments delivered within promised SLA by route

Quarterly Business Reviews (QBR)

Conduct a formal QBR with all tier-1 vendors (your top 5–10 by spend or criticality) every quarter. QBR agenda:

1. SLA performance review — scorecard walkthrough
2. Escalated issues from the quarter — root cause and resolution status
3. Roadmap alignment — what is the vendor planning that affects you? (pricing changes, feature deprecations, team changes)
4. Your volume forecast for the next quarter — helps the vendor resource plan and gives you leverage to negotiate pricing
5. Improvement commitments — specific, dated, measurable commitments for the next 90 days

Escalation Matrix

Before any issue occurs, agree on and document the escalation matrix with every critical vendor: Level 1 — Support ticket (target: 1-hour acknowledgement); Level 2 — Account Manager direct line (target: 4-hour escalation); Level 3 — VP/Director of Customer Success (target: 24-hour executive escalation); Level 4 — Legal/Commercial escalation (SLA breach, contract dispute). Having this matrix agreed and signed before a crisis dramatically reduces resolution time when things go wrong.

Invoice Tracking and Approval Workflow

Even at 5–10 employees, establish a formal invoice approval workflow. A common Indian startup best practice:

• Vendor submits invoice to a dedicated accounts email (accounts@yourcompany.com) — never to a personal employee email
• Invoice is verified against the SOW and/or purchase order — amount, scope, period, and GST details must all match
• Approval route: initiating employee → Finance → Founder for invoices above ₹1L (or whatever threshold fits your stage)
• Payment processed within contracted terms (Net-30, Net-45) — track due dates in a shared payment calendar
• TDS deducted at source before payment release — vendor receives payment net of TDS

Advance Payment Risks

Payment Terms Negotiation

As a startup, your cash flow management depends on negotiating favourable payment terms. Key tactics for the Indian vendor ecosystem:

• Offer early payment discounts in reverse: "We'll pay in 7 days instead of 30 if you give us 2% off" — works well with small vendors who have cash flow constraints
• Annual prepay for SaaS tools: Most Indian SaaS vendors offer 10–20% discounts for annual upfront payment vs monthly billing — the discount often exceeds your cost of capital at early stage
• Volume commitments: If you can commit to a quarterly or annual volume, use that leverage to negotiate Net-45 or Net-60 terms — the vendor gets predictable revenue, you get better cash flow

Corpfy's Vendor Management dashboard gives you a complete view of every supplier relationship — contract expiry dates, performance scores, spend by category, and risk tier. Contract expiry alerts fire automatically so renewals are never missed, and vendor performance scoring (SLA adherence, quality, support responsiveness) creates an objective record for renegotiation conversations.

What you get in the dashboard