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Vendor Onboarding Challenges: Manual Vendor Data Collection

In many organizations, vendor onboarding and data management are manual and decentralized. When employees across various departments and units can engage vendors, significant challenges arise in collecting complete and accurate vendor data by accounts payable (AP) or the master file team. AP must rely on a host of near and distant employees but is ultimately responsible for validating vendor data and ensuring its completeness and compliance with tax and other regulations. This report outlines these challenges, provides examples of potential points of failure, and discusses the consequences.

Challenges in Ensuring Complete Vendor Data Collection

Decentralized Engagement, Varied Priorities and Knowledge

Suppose a marketing department project manager engages a new vendor for a campaign. The manager’s primary focus is on meeting project deadlines and budget constraints, not collecting detailed vendor information. Therefore, the manager might not notice that critical vendor data, such as tax identification numbers or insurance documentation, are missing. Consequently, missing information leads to delays in payment processing and potential non-compliance with regulatory requirements.

Or consider that while an employee in the procurement department is trained on the importance of collecting complete vendor data, a new hire in the IT department is not. The IT person engages vendors without understanding the need for comprehensive data collection. Therefore, new vendor profiles are incomplete, leading to a higher burden on accounts payable to chase missing information.

Manual Data Entry and Documentation

Not only is sufficient data collection a problem, but organizations that rely on manual data collection and entry face other issues. Employees manually entering vendor data into spreadsheets or paper forms can make typos and incorrect entries or may miss some fields. These hazards are common in manual data entry. Data inaccuracies lead to payment errors and compliance issues. They also increase the workload for accounts payable to correct mistakes.

Duplication of Effort

As different departments independently collect vendor information, they may fail at the first task—to confirm whether the vendor already exists in the organization’s master file. So, they create duplicate records, probably with inconsistent data. Discrepancies in vendor information cause further confusion, delays, and potential duplicate payments.

Challenges for Accounts Payable

Reliance on Incomplete or Inaccurate Data

When accounts payable receive incomplete vendor information from various departments, they must spend significant time verifying and completing vendor profiles. Consequently, there are delays in vendor payments, strained vendor relationships and increased administrative workload.

Compliance Risks

Vendor data that employees collect lacks necessary compliance documentation (e.g., Form W-9, insurance certificates). Accounts payable is unable to validate tax identification numbers or insurance coverage. This produces further delay. AP must chase down the appropriate data and documentation to ensure compliance with tax regulations, potential fines, and legal liabilities

Bank Account Verification

Secure, accurate bank account information is essential with the increased move toward electronic payments. However, if an employee fails to collect the necessary information or utilizes the insecure email method, they take an enormous risk.

Business email compromise is big business for cyber thieves, and electronic bank payments are a primary target. When fraudsters insert themselves into email communication, incorrect bank account information results. When the provided bank account belongs to someone other than the vendor but goes unverified, payments go amiss, leading to financial loss, reputational damage, and legal complications.

Some Examples of Vendor Data Points of Failure and Consequences

Scenario 1: Marketing Department Vendor Engagement
Point of Failure: A marketing manager hires a freelance graphic designer and provides minimal information to accounts payable.
Consequence: Accounts payable cannot verify the designer’s tax identification number or bank account, delaying payment and risking non-compliance with IRS regulations.

Scenario 2: IT Department Software Purchase
Point of Failure: An IT specialist engages a software vendor without collecting proof of insurance or validating the vendor’s business credentials.
Consequence: The organization faces potential legal issues if the software malfunctions and causes damage, as no insurance coverage documentation exists.

Scenario 3: Procurement Department Supplier Onboarding
Point of Failure: A procurement officer manually enters a supplier’s information into a spreadsheet, making a typographical error in the bank account number.
Consequence: Payments are misdirected, resulting in delayed deliveries, strained supplier relationships, and financial losses due to erroneous transactions.

Conclusion Pointing to a Solution

The manual and decentralized approach to vendor data collection that exists in many organizations presents significant challenges for ensuring the collection, verification and maintenance of complete and accurate vendor data. Accounts payable, or whoever is ultimately responsible for validating vendor data and ensuring compliance, faces a considerable burden due to incomplete information, human error, and inconsistent processes.

Implementing standardized procedures and comprehensive training are crucial, yet organizational dynamics tend to work against them. However, implementing a central vendor information portal with automated workflows and automatic data validation and verification mitigates these challenges, leading to significantly more efficient and compliant vendor onboarding and data management processes.

Learn how VendorInfo’s vendor data portal with automated verifications and workflow can revolutionize your vendor onboarding–contact us.

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