Your A/P department’s master vendor file is a crucial part of managing your company’s supply chain assets, providing data for analysis of spend, payment methods, payment terms and rebates. But that data’s only valuable if it’s accurate and reliable.
A master vendor file that contains complete, current and uniform data is also a tool for ensuring compliance for combating fraud and erroneous and duplicate payments.
But because this file is frequently revised and grows longer as new suppliers are added to it, keeping all that data validated and organized can be a challenge, especially when A/P staffers are also busy using the master vendor file to ensure that your organization’s payments are being made to the correct vendor in the correct amount at the right time.
Master vendor file housekeeping
To keep fraudulent, incorrect, missing, incomplete or duplicate information out of the master vendor file, it’s vital to have defined controls and procedures in place. If it’s been a while since your processes have been reviewed, it’s time to check if your best practices include:
- Using a standardized form for new vendors and changes to existing vendor information to prevent phantom vendors
- An up-to-date review and approval hierarchy for any requests for new vendors or changes to vendor info
- Updated, defined and segregated roles and responsibilities across the P2P chain for adding new vendors. Consider limiting the ability to set up and change vendors to employees who don’t have access to perform invoice entry.
- Training the person in the vendor database role on the importance of the job
- A time threshold when vendors that haven’t been paid for a long time are declared inactive (e.g., 12-18 months). Archiving vendors at least once a year helps to keep the master vendor file tidy.
- Required validation from a second authorized supplier representative for any change requests to vendor information
- Reviewing system data before any new vendors are added to ensure the vendor hasn’t already been entered in the master vendor file
- Running searches to ensure that employee addresses in your HR files aren’t entered as vendor addresses in your system. Investigate all matches as some may be legitimate, and
- Periodic comparisons of your vendor database to the customer master file in Accounts Receivable. Identifying any related vendors can then be used as leverage for collecting balances due from vendors which are no longer active, and to maximize your negotiating power with current vendors.
New vendor/info change checklist
Before making any new vendor entries or changes to existing vendor info in the master file, verified information that should accompany requests must include:
- the business’s legal name
- the business’s address
- the remittance address
- a contact phone number
- a contact email
- a verified Taxpayer Identification Number (TIN) – be sure to correct any mismatches from the IRS TIN Matching site and re-run the data before making any payments
- a properly completed tax form, such as a Form W-9
- Office of Foreign Assets Control (OFAC) verification
- the name and signature of the person requesting the setup or change, and
- the name and signature of the person approving the addition/change to the master vendor file.
To streamline gathering this info, many companies have turned to using self-service vendor portals that require the supplier to enter its own information into the master vendor file, or A/P automation solutions.
If you need some help with vendor validation, try these sources:
- Vendor legal name and tax ID for exempt organizations: apps.irs.gov/app/eos
- Vendor addresses (U.S.): www.usps.com and www.google.com/earth
- Vendor addresses (Canada): www.canadapost.ca/cpc/en/business/ecommerce/enhance/verify-addresses.page
- Vendor addresses (non-U.S. and Canada): www.upu.int/en.html, and
- Vendor Value Added Tax (VAT) Number (validated against the VAT Information Exchange System): ec.europa.eu/taxation_customs/vies.
Setting up naming, entry standards
Because consistency is key to avoiding duplication of supplier records in the master vendor file, here are some rules that can help:
- Identify specific system requirements, such as field length and number of fields available, for vendor name and address information.
- Define how you’ll use abbreviations. If the vendor has a long name or address, and the field size is limited, you need a rule for abbreviating common words (e.g., “Blvd.” for boulevard).
- Define rules for punctuation, such as periods, commas, apostrophes, parentheses, colons, semi-colons, hyphens, slashes, ampersands and other special characters.
- Define rules for how to use the word “The” if it’s the first word in a supplier’s name. For example, setting up The Home Depot as “Home Depot The.”
- Define rules for when numbers are part of a vendor name. Include instances where the vendor’s name begins with a number, and where a number is contained in the middle or end of a supplier name, and
- Define rules for municipalities. Vendor names beginning with “City of,” “State of,” “Department of,” “Treasury Department,” “Controller” or “Tax Department” can be difficult to find in a master vendor file, and can lead to duplication.
Regular maintenance of a master vendor file can lead to a more efficient A/P process, improved vendor relationships, more effective procurement performance, more effective sales and revenue reporting and improved protection of your company’s cash flow.