Five Steps to Clean Your Vendor Master File and Maintain it with a Vendor Management Solution

AP Employee reviews audits on a laptop as part of vendor management solution

Ready for a better vendor management solution and system? It starts with a vendor master file audit. Sourcing and accounts payable auditors rely heavily on their vendor master file (VMF) for proper payment processing, keeping track of supplier discounts and incentives, as well as to protect against fraud. However, without a proper vendor management solution, many vendor master files are not properly maintained and the integrity of the file is compromised, which leads to numerous headaches such as duplicate payments, missed rebates, and IRS reporting errors.

Follow these First Five Steps to Clean Your Vendor Master File often used by our Accounts Payable Recovery Auditors at AP Recovery.

1. Establish policies and procedures for administering the vendor master file.

It is very important to limit administrative rights to the vendor master file. Identify those people that will create new vendor accounts and/or make updates to existing accounts. Through establishing policies and procedures, you are essentially creating a measure of internal controls of the file, which limits the number of possible errors made from having “too many hands in the pot” as well as reducing the chances of fraudulent activity that can occur.

 

2. Identify vendor accounts with $0 activity.

Vendor records get created for one reason or another, however, sometimes a few of those records never get used. It is important to identify this group and deactivate them. Before you deactivate, cross-check with your purchasing department for open POs before deactivating dormant vendors. If a vendor is classified as dormant and deactivated before a PO is completed, it can cause more work for your purchasing department. Reviewing with your purchasing department before establishing requirements for deactivating dormant vendors, prevents costly errors.

 

3. Identify vendor accounts with no activity within 24 months.

Each company has its own exact policy, but it is generally accepted today that if there has been no activity in 18-24 months then the record should be deactivated. Use the same procedure of checking for open POs and checking with sourcing before deactivating.

 

4. Identify duplicate vendors in your accounts payable with a vendor management solution.

Once you have identified duplicate records then it is time to review and make one of three decisions: 1. Deactivate 2. Merge 3. Approve the duplicate.

You may have already removed some of the supplier duplications while you were deactivating accounts in a previous step, however, for the remaining duplicates you want to look for entries where vendors aren’t exact matches. To properly remove duplicate entries, you should scour the data and analyze key fields using fuzzy and phonetic logic to search for similar items that have been misidentified.

Get smarter about removing phonetic or fuzzy matches by using software created to save your file from clutter and your time from being wasted with a vendor management solution. Once you’ve separated the duplicate entries, it’s time to make the final decision to deactivate, merge, or approve the duplicate. There are times that you need to have multiple records for multiple vendor terms, addresses, etc.

 

5. Perform IRS TIN Matching on your vendors.

TIN (Tax ID Numbers) Matching is the process of verifying the name and main taxpayer ID of a vendor within the IRS database. It is highly recommended to complete this procedure using the IRS Taxpayer Identification Number Matching service whenever adding a new vendor into your master vendor file for a few reasons, such as:

  • Verifying payee name and tax identification information matches against the IRS database
  • Ensuring vendor information is correct to avoid errors and potential penalties for submitting incorrect tax returns
  • Reducing the error rate in TIN validation

 

How to Keep Your Vendor Master File Under Control with Our Vendor Management Solution

The first steps of getting your Vendor Master File clean are just a part of keeping your supplier records accurate and manageable. Ongoing vendor maintenance is essential for keeping your operation profitable while preventing future financial leaks. Download our full white paper, the Ultimate Guide to Cleaning Your Vendor Master File, for more actionable steps and a vendor management solution your organization can use to keep your vendor master file clean for good.

Download the free white paper to get started with cleaning your vendor master file.

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