Master vendor file cleanup may seem like a daunting project, but can easily be made into a controlled process.
By making master file updates on an ongoing basis, you can avoid many processing pitfalls. These include incorrect entries, double payments, fraudulent activity and non-compliance. With the right process in place, a clean master vendor file enables improvement throughout your accounts payable operations.
Let’s take a look at a few best practices when doing a master vendor file cleanup:
- Remove vendor duplication. Did you know that almost 30% of all double payments are the result of duplicate vendors and vendor coding issues? Duplicate vendor entries lead to double payments which cost your company time and money. Obviously, preventing a double payment costs less than trying to recover one once it’s been made. Additionally, audit recoveries increase with more efficient identification of questionable vendors.
- Not everything is a duplicate entry. Generally speaking, vendors are unique. Unfortunately, this rule sometimes breaks down. Complications include multiple payment sites listed under one vendor or more than one vendor number for each shipping location. To cope with this, many accounting systems allow coding of parent and subsidiary relationships between vendors.
- Archive inactive vendors. When you haven’t used a vendor in some time, remove them from your active vendor list. By archiving the vendor, their information remains accessible for reinstatement. Furthermore, with inactive vendors gone, your list becomes leaner and records are easier to access. Straightaway, reduced processing time leads to improved employee productivity.
- Obtain any missing data. While this is easier said than done, ensure the completeness and accuracy of all vendor records.
- Transform your vendor file into a strategic resource. When performing master file maintenance, include other functional areas, such as purchasing or contracts management. Their different viewpoints on vendor management may have value. Codifying vendor information from their areas could turn your vendor master file into a more strategic resource for many departments.
- Automate the process. Some cleanup activities lend themselves well to automation. Automation can monitor your file by encoding company policies into a continuous monitoring solution, but you need to set the parameters.
- Vendor portal. Moving forward, consider implementing a vendor self-service portal where individual vendors can update pertinent information and find answers to relevant questions.
Establishing controls can have dramatic benefits, especially properly consolidating vendor records by eliminating duplicates. You’ll get more bang for the buck through cash discounts and volume rebates. Ultimately, monitoring and analyzing your AP spend with each consolidated vendor might lead to savings through renegotiation. A clean vendor master file helps ensure compliance with regulations, internal controls, as well as 1099 tax legislation.
Fraud detection and reduction
The Association of Certified Fraud Examiners estimates that the average company loses 5% of its annual revenues to fraud. With clearer visibility and better controls, it’s also easier to reduce fraud through detection of questionable vendors and identification of attempts to bypass your internal controls. For those reasons alone, a master vendor file cleanup is something you should consider to be a top priority and directly related to the strategic goals of your company.
Control new vendor setups
Your actions after the initial cleanup are as important as the cleanup itself. You’ll want to establish consistent guidelines and coding standards for vendor set up, and identify vendors that already exist in subsidiary or parent company master file. Once again, this enables consolidated views of total vendor spend.
Most importantly, maintain the integrity of your vendor file through regularly scheduled reviews and continuous monitoring. A clean master vendor file delivers cost savings and increases productivity throughout your company by providing user friendly and accurate information. Although the analysis and cleanup may be time consuming, once finished, it provides a framework for future vendor management.
Getting the payoff from a cleanup
Like any new habit, GETTING STARTED is the key. Our VMFA Made Easy page explains how to quickly and economically accelerate your vendor cleanup. Start today by completing the contact form on this page or emailing Sales@BerkOne.com.