Vendor masters are not static files. New vendors are added regularly. Old vendors need to be inactivated. And vendors send change requests for contacts, address and bank account information. The vendor master file (VMF) is a lot to keep up. And many organizations do not keep it up regularly. Vendor files need cleansing.
There are nine steps to thoroughly cleaning a vendor master file. This article will address the first two steps. Subsequent articles cover the remaining steps (see Part II here). Steps three through eight will be familiar to everyone with a sound vendor onboarding process and are critical if your onboarding process is less than thorough.
The first two steps are vital to clean up problems in a VMF that left unattended can lead to delays, duplicate payments or fraud. Remember, once an entity is in your VMF, your organization can issue payments. So, every entity in the VMF must be an authentic and validated vendor.
Step 1: Eliminate Duplicates
The first step is to find and eliminate duplicate vendors. Duplicate vendor records create several problems and risks:
- Limited visibility into spend – information is split between multiple records, giving a misleading and incomplete view of spend.
- Duplicate payments – duplicate records lead to duplicate payments.
- Internal or external fraud – a duplicate record can lead to payments to a fraud perpetrator rather than the legitimate vendor.
- Payment delays – if a vendor initiates changes to its address or bank information, a staffer might update one record, unaware of the other; but the other record may then be referenced for a payment, leading to a delay in vendor payment.
Finding and removing duplicate vendors is critical to vendor master file maintenance. You can use different techniques to find duplicates, including sorting by tax ID, legal vendor name or address. You can also use Excel or Google add-ins incorporating fuzzy matches and other advanced features.
Not every match is a duplicate. Vendors can have multiple payment sites, shipping locations or other reasons for multiple entries. Be aware of parent-child vendor file entries; research and understand each vendor’s particulars.
Once you identify duplicate vendors, additional research will help determine which of the records to keep and which to inactivate. Consider history as well as open activity, such as unpaid invoices or open purchase orders, in deciding which record to keep. Put a note in the active record referring to the inactivated duplicate, including the vendor number.
Step 2: Inactivate Old Vendors
Eventually, your company no longer uses some vendors; you should mark them inactive. To find and inactivate those vendors, pull a vendor report. If a vendor has not been active for a determined period, for example, 12 months, then the vendor’s information should be considered stale.
Pull all vendor information required to validate the vendor, such as a legal name, tax ID and address. Also include sections of the vendor record with invoice or payment activity tied to them, such as the address and location sections. This information typically comprises the vendor ID number, legal name and tax ID, the address ID and all address fields, the location ID and all locations.
Next, pull transaction activity, including the last activity date or open and pending statuses. Activities include invoices, payments, purchase orders and vendor record updates.
After pulling the reports, merge the information into one consolidated working file, matching each vendor’s vendor ID with their address, location and all activity. Now you are ready to review. For each vendor ID, address and location ID, you want to check the last activity date of each or whether an item is pending, such as an invoice, or open, such as with a purchase order.
Mark for inactivation all those not open or pending and have a last-activity date before the inactivity period. For example, suppose your inactivity period is 12 months, and today’s date is June 1st. In that case, you want to inactivate all vendors whose last activity date was before June 1st, one year ago. (Tip: some organizations set an inactivity period of 13 months to ensure they do not inadvertently inactivate an annual vendor.)
While this process is manual for many, there are some automation options. Some accounting systems or ERPs can be customized to look at the PO invoice payment or vendor record activity to see if a vendor should be inactivated, handling this step for you. You can automate some parts of the process using robotics process automation or RPA.
For information about how VendorInfo can help with deduplication and other aspects of your vendor master file cleanup, contact us.