Vendor master files are dynamic. Organizations add new vendors and should inactivate old vendors. Active vendors change addresses and bank accounts, merge or acquire other vendors. Consequently, vendor master files require upkeep. Here are steps to cleaning the vendor master file.
Part one of this two-part series on VMF cleansing addressed the first two of nine steps in thoroughly cleaning a vendor master file, and can be found here. This article will cover steps three to five. These steps should be familiar to everyone as they are also part of a sound onboarding process. Steps three and four are a critical to IRS compliance, while step five has to do with ensuring mail delivery (yes, it’s still a thing).
Failure to complete steps three and four in onboarding and in ongoing maintenance leads to compliance failures, fines and penalties. Failure to complete step five causes delays, lost checks and rework.
Step 3: Cleaning Up TINs – IRS TIN Match
Vendors may not always notify you when they have a legal name or tax ID change. It is good practice to proactively identify changes before the 1099 season when you must distribute 1099s or 1042s and send the related tax filing to the IRS.
Use the IRS bulk TIN match process. You can upload a batch file to validate that the vendor’s legal name and tax ID in your master file still match. The IRS indicates that processing a batch file should take 48 hours. This re-validation process helps to reduce IRS CP-2100 notices that trigger the B-notice process because you are catching mismatches in advance.
You can also use a third-party service, such as VendorInfo, to automatically perform the IRS TIN match and additional vendor validations.
Step 4: Validate Tax Registration Numbers for Foreign Vendors
In this step, you want to validate foreign tax registration numbers for vendors in other countries. You might need to collect non-US tax registration numbers for teams outside vendor maintenance or accounts payable since they may use them to reclaim taxes paid on invoices. Examples of such foreign tax ID numbers are GST (in countries such as Canada and India) and VAT numbers (in Europe and elsewhere). To validate the value-added tax or VAT number for EU vendors or countries with VAT, use the VAT information exchange system or “VIES.” Validate the goods and services tax or GST for vendors in India using the government website for GST and the GST/HST site for Canada. Validate other countries based on the applicable tax business or individual registration number valid for that vendor’s country.
Step 5: Address Validation and Standardization
By validating and standardizing addresses, you ensure your mail to vendors will reach them successfully. You don’t want check payments, 1099s or 1042s that you mail out to be returned to you, necessitating rework.
Standardizing addresses also assists in uncovering duplicates. If you are mailing from the US to a US or non-US vendor address, use the United States Postal Services USPS zip code lookup tool to validate US addresses individually. Use the postal addressing standards, publication 28, to identify standardizations for US addresses and formats for international addresses.
If you are mailing from outside the US to a US or non-US vendor address, use the Universal Postal Union or UPU to validate US and non-US addresses. You can also inquire if their EDI process is an option for your IT team to configure to automate this process. There are third-party services, such as VendorInfo, that can provide validation for vendor addresses.
Keep It Clean
A maintained vendor master file means accurate and current vendor data, which enhances efficiency in accounts payable and avoids problems in vendor relations. Stay tuned for the final four steps in vendor master file cleaning.
To find out how VendorInfo can help you with vendor onboarding ongoing maintenance and vendor relations, contact us.