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Master Vendor File Cleanup: Best Practices for Year-End Closing

July 14, 2017
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Vendor information is in constant flux, because contact names, phone numbers, addresses, and terms change frequently. For AP professionals, vendor management can be one of the toughest challenges to grapple with in a manual, paper-based environment. By updating the master vendor file on an ongoing basis, however, you can avoid the problems that arise with incorrect entries and duplicated payments.

In today’s blog, we’ll look at some best practices for performing a master vendor file cleanup. By following these steps, you will ensure that you have a current master file that will make year-end closing easier and streamline enterprise-wide processes.

Master Vendor File Cleanup Best Practices

1)    Consolidate and Validate
Consolidate all your vendor data, standardize company names, addresses, and other vendor information based on global standards. Once your house is in order, verify addresses, banking information, and other critical data with external sources to ensure accuracy. Companies should obtain a W-9 or an equivalent form before setup and payment. TIN (Taxpayer Identification Number) validation and vendor name matching should be performed using the IRS TIN matching system.

2)    Remove Duplicates
The leading cause of duplicate payments is from duplicate vendors in an ERP system. When an invoice is entered into the accounting system, a duplicate vendor file is created if a different code is selected. This new file will be attached to the same vendor, which results in a duplicate payment.

You should consider adopting a vendor payment policy that requires an official invoice that includes an invoice number that references a contract number to avoid this issue.

Unfortunately, double payments can also happen when unethical employees or vendors take advantage of the system. Per the Association of Certified Fraud Examiners 2016 Global Fraud Study Report to the Nations on Occupational Fraud and Abuse, the typical organization loses 5% of annual revenues to fraud. The report indicates that proactive data monitoring and analysis can reduce median losses by half.

3)    Archive Inactive Vendors
If you haven’t used a vendor in the past 15-18 months, then it’s best to remove them from your master vendor list.  If the supplier is archived, then their information can be easily accessed for reinstatement. By removing inactive vendors, your list becomes leaner and your records are easier to access, which increases employee productivity by reducing processing time.

4)    Fill in the Gaps
Make sure all files are complete and accurate by obtaining any missing data from the vendor. Go beyond basic name and address conventions to add missing contact names, phone numbers and email addresses, as well as corporate linkages. Duplicate vendors and double payments can occur as a result of external activities, such as mergers and acquisitions, so be sure to familiarize yourself with parent and subsidiary relationships between suppliers.

5)    Implement a Vendor Portal
Implementing a self-service portal for suppliers is a good idea for many reasons. A self-service portal reduces inbound calls and emails regarding receipt and payment status and frees up your staff to dedicate time to high-level, strategic tasks. Concerning the master vendor file, a portal allows individual vendors to update their information, which improves accuracy and minimizes issues with missing data.

6)    Automate
By utilizing an accounts payable automation solution, you can create a standardized vendor setup process with internal controls. This means fewer duplicate payments and fewer opportunities to become a victim of fraud. You’ll also reduce IRS B-notices and fines by ensuring business isn’t conducted with companies on federal watch lists.

By automating supplier data management, you can turn your vendor file into an increasingly valuable business asset that you can use to analyze and manage your AP spending and ultimately lead to potential renegotiation with your vendors.

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