Why the fields you skip at vendor information setup are the ones that cost you
You’ve got to add another new vendor into the vendor master file. Okay, have you got all you need? Name? Address? Phone number? What else do you need and have you got it?
In a busy accounts payable department, it’s tempting to treat vendor setup as an administrative formality. Get the vendor in the master file so you can get it paid. But the vendor master file isn’t a contact list. It’s the control point on which payment accuracy, fraud prevention, tax and sanction compliance, and audit defensibility depend.
Ancient proverbs, like “A stitch in time saves nine,” offer the wisdom of experience in catchy warnings. Attending to small things now saves suffering large consequences later. When it comes to vendor information, every field in the vendor master file is a nail holding the horseshoe in place; If you skip one today, you risk of unhappy consequences later.
So, what information belongs in the file? You need more than name and address, at minimum probably the following:
- Legal Business Name and DBA
- Remit-To Address (and How It Differs from the Business Address)
- Primary Contact Name and Phone Number
- Taxpayer ID (W-9 / EIN or SSN) and Backup Withholding Status
- Vendor Classification and 1099 Type
- Sanctions and Watchlist Screening Results
- Payment Terms and Preferred Method
- Verified Banking Details
- Possibly Insurance Certificates and Contract Expiration Dates
Collecting and verifying these vendor information items are controls, not administrative details. Let’s look at core vendor information items and why you need them.
Name
The vendor’s legal business name is not just what the vendor calls itself on an invoice. It’s the legal name that matches its tax filings; you also need any “doing business as” name it operates under.
If you don’t verify it, you issue payments and 1099s under the wrong entity, vendor invoices don’t match your records for a three-way match, and you end up having to reconcile a mismatch instead of preventing one.
Remit-to Address
The remit-to address often differs from the business address. A vendor’s headquarters and its remittance address are often not the same place, and both are different again from the address on file with the bank.
If you don’t get it, payments go to the wrong location, checks go missing, and — in the more serious case — you have no baseline address to compare against when a fraudulent “address change” request comes in.
Primary Contact Name and Phone Number
You need a real person who can be reached by phone when something needs to be verified quickly. If you don’t get it, when you need to confirm a change to banking details or an invoice discrepancy, you’re calling or emailing into the same channel a fraudster may have already compromised, instead of picking up the phone to a known contact.
Taxpayer ID Number
You need a current W-9 on file, matched to the legal name above, with backup withholding status confirmed. Without a valid TIN, you expose yourself to IRS penalties for incorrect or missing TINs. The IRS rejects your 1099 filings; and you must chase down the correct information from the vendor when its incentive to cooperate (after payment) is considerably lower.
You also need to know whether the vendor is a corporation, sole proprietor, LLC or attorney, to determine whether you must even issue a 1099. Misclassification means misfiled 1099s, incorrect withholding decisions and a scramble at year-end to correct records.
Sanctions and Watchlist Screening
This is not information collected from the vendor but a comparison of the vendor’s name and other information against government sanctions lists. It’s important not only to confirm that the vendor has been screened against OFAC and other applicable exclusion lists, but to retain you records to demonstrate having done so on an ongoing periodic basis.
An unscreened vendor is a compliance exposure. It sits quietly in the master file until an audit, a regulator or a bank finds and reports it, and you.
Payment Terms and Preferred Method
What are net terms, early-payment discount eligibility? Should you set up the vendor for ACH, wire, check or card payment?
If you don’t get this information, your payment method defaults to whatever’s convenient rather than what’s controlled. You can miss discounts, apply terms inconsistently across invoices from the same vendor, and damage vendor relations, leading to less favorable terms.
Banking Details and Their Verification
The right account and routing numbers are critical, as is the owner of the account. How are you verifying the bank account? Employ a callback to a known phone number out of band; ideally use an automated bank account-validation application. Do not rely on an emailed form.
Bank account change is the single most common vector for vendor impersonation fraud. An unverified banking change is how a business email compromise turns into a wire that can’t be recalled.
Insurance Certificates and Contract Expiration Dates
For vendors where it applies, get current certificates of insurance and the dates that trigger renewal. If you fail to get this information, coverage may lapse without anyone noticing until there’s a claim, and by then it’s a liability question.
Controls, not Trivia
None of these vendor information fields, by their own, may look like the one that matters, if the vendor can be paid. But that’s exactly the point. None of these bits of information is trivial. They are all controls to ensure efficient, accurate, legal payments to the actual vendor. The vendor master file doesn’t fail because of one dramatic gap. If it fails, it’s due to a skipped field whether because of a hurried onboarding process or carelessness. But a small omission is the reason the large problem happens. All those bits of information are important for a specific reason.
An old proverb warns how small things can lead to large loses indeed:
For want of a nail the shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost, being overtaken and slain, all for want of a horse-shoe nail.
The vendor master file is full of nails. Get them right at intake, and the shoe, the horse and the rider will be fine.
To learn how VendorInfo can help ensure that you get all the vendor information nails in place, contact us.