Previously, in our blog, Mitigate Mistakes & Fraud: Creating an Accounts Payable Process That Works for You, we discussed the importance of adopting best practices when approaching your accounts payable process. By its nature, the A/P process ensures an organization is making payments to suppliers and creditors for purchased goods or services in a timely way, managing its liabilities. Integral to this process is vendor management.
Payment terms. W-9 information. Purchase Orders. Vendor contact information. All of this is wrapped up within the accounts payable process, to be organized and maintained, manually or via your accounting software. The process includes transparent reporting too, keeping management or operating boards apprised on how goods and services are acquired, from whom and how much the business owes its vendors. Creating and maintaining a clean process supports good relations between your vendors, smooth operations for your teams, and trust in your business and financial relationships.
As such, a process for effective vendor management should include a few elements to help ensure data integrity is high, systems are safe and your vendors are paid. Your vendor management systems should include the following elements
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- A thorough scrubbing of the existing vendor list. Look for inactive vendors, duplicate vendors, vendors with same address but different names, vendors who have not submitted W9 forms, vendors with incomplete information (e.g., no address, no phone, no vendor payment terms, no contacts). This scrubbing should be completed at least once per year. Using a tool such as Excel spreadsheet will make it easier for you to quickly find vendor data issues. Address these issues by contacting vendors for missing information or identifying irregularities the teams might be making and where a process refresher may be required.
- Establish a policy around vendor management. This policy should include how new vendors should be added, who has authority to approve the new vendor, what information is required for new vendor additions, how are new vendors vetted for authenticity, who is able to add new vendors to the accounting system, etc. Your goal is to have prescribed steps to follow consistently, ensuring vendors are properly authorized and not set up “on the fly” or that are allowed to be onboarded before all data is collected. This step is a key one for uncovering fraudulent information being supplied, or by preventing sensitive financial information to fall into the wrong hands.
- Require regular monthly reports. Reports make it easy to aggregate complex information into an easy scan format. Use reports to examine new vendor additions, vendor file changes, and vendors with incomplete information. These reports should be audited against the established vendor management policy to ensure all changes to the vendor master list were performed by staff with the proper authority and approved by management with the proper authority.
One benefit to having a clean vendor database is the ability to prevent payments being sent to vendors who have not been completely vetted for doing business with your organization or sending payments to vendors whose information has been “hijacked” through fraud schemes.
What would you add to this list?
As always, we’re here to help.