Vendor Master Best Practices

Importance of the Vendor Master File

As businesses change and grow, maintaining a clean vendor master file by using a combination of controls around the setup, maintenance and archiving of records, is the best practice. The primary goal is to safeguard assets by ensuring accuracy of data to reduce fraud, erroneous and duplicate payments.

Organizations create new suppliers, handle mergers, acquisitions, changing corporate structures and remit to addresses regularly.  All while ensuring payments are made to the correct vendor, in the correct amount, at the appropriate time to maximize discounts. This is no small task, especially in the current climate of remote work. Now it is more important than ever to ensure the accuracy of the data used to pay suppliers.

Consistency is Key!

Controls and procedures within the vendor setup and change process will help to maintain clean data and avoid occurrences of duplicate records, wrong, missing, and incomplete information. A clean vendor master file is a tool easily used to analyze vendors, spend, payment method and payment terms. The importance of valid, accurate, complete, consistent, and uniform data in the master file can not be stressed enough.

Best Practices for a Clean Vendor Master File

  1. Requests for new vendors and changes to vendor information must be reviewed and approved by an appropriate hierarchy within the organization.
  2. Requests for changes to vendor information, including remit to address, require validation from a second authorized supplier representative.
  3. Requests for new vendors and changes to vendor information require documentation. Documentation must be complete and include at a minimum:
    • Legal name
    • Address
    • Remit address
    • Contact phone number
    • Contact email
    • Properly completed tax form
    • TIN verification
    • OFAC verification
    • Name and signature of person requesting setup/change
    • Name and signature of person approving addition/change to vendor file
  4. Limit access and ability to add new vendors to the master file. Define associate roles and responsibilities that support segregation of duties. Limit the ability to setup and change vendors to associates who do not have access to perform invoice entry.
  5. Review data within the system before any new vendors are added to ensure the vendor does not already exist.
  6. Review / audit additions and changes to the vendor master file.
  7. Inactivate vendors that have not been paid for a defined period of time. The typical dormant period before inactivation is 12 – 18 months.
  8. Define standard naming rules for the vendor master file. Consistency is critical to avoid duplication of supplier.
    1. Identify specific system requirements such as field length and number of fields available for vendor name and address information.
    2. Define abbreviations for use in vendor master file. It is common for words to be spelled out. However, if limited by field size – define abbreviations for common words found in supplier names and addresses.
    3. Define rules for punctuation. It is common to exclude all periods, commas, apostrophes, parentheses, colons, semi-colons, hyphens, slashes, ampersands, other special characters, and extra spaces.
    4. Define rules for use of the word “The” as the first word in a supplier name. It is common for the vendor’s name to appear without the word “The” at the beginning. For example, The Green Apple would be setup as Green Apple The.
    5. Define rules for numbers as part of vendor name. Include instances where the vendor’s name begins with a number and where a number is contained in the middle and end of a supplier name.
    6. Define rules for municipalities. Vendor names beginning with City of, State of, Department Of, Treasury Department, Controller, Tax Department are often difficult to find in the vendor master file which can lead to duplication.  It is common to add these vendors to the master file using the following structure, the Office of The State Treasure of Oklahoma would be entered as Oklahoma Office of the State Treasurer.

Commit to Maintaining the Vendor Master File

The value of the data in the vendor master is directly related to its accuracy.  It is worth the effort to clean and maintain this file. A vendor master file that contains complete, current, and structurally consistent data is a tool to combat fraud, erroneous and duplicate payments. It helps to ensure compliance with statuary requirements and allows visibility to the vendors for better management of terms, rebates and total spend.

Ultimately a clean vendor master file, a defined process and internal controls, lead to a more efficient and accurate accounts payables process.  Further, the avoidance of erroneous and / or duplicate payments prevents the organization’s dollars from sitting in the vendors’ accounts and will minimize profit leakage.

Contact SAS to learn more about Accounts Payable Recovery Audits, Vendor Master Cleansing, and mitigating risks.

For an additional Vendor Master File article – click here

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