Vendor Master Database – The Cornerstone to a Successful Supply Chain

Vendor databases can go by different names depending on your industry and company:  Vendor Master, Supplier Master File, Vendor Management Program.  Regardless of the name, an accurate and complete vendor database contributes to operational effectiveness and internal controls by supporting your Company in a multitude of ways.   It will help to prevent inaccurate payments, reduce fraud, ensure regulatory compliance, and track purchase history – among others.  While primarily a tool for Accounts Payable to ensure accurate payments, it can be a valuable resource across all areas of the Company.  In fact, the vendor master database is the cornerstone for the entire supply chain.

A quality vendor master database will provide the following benefits:

• Better manage your vendor relationships – Having all vendor related information in one place and in a standardized format can assist your decision-making processes as you evaluate vendor performance. The more you know about your vendor partners, the better your relationships will be.
• Ensure accurate and timely payments – Vendor payment information must be 100% accurate to ensure that vendor payments are sent to the right address and arrive on time. A database which effectively controls vendor setups to eliminate duplication’s, is critical to preventing wrong vendor payments.
• Allows procurement teams to operate more effectively – A good vendor database will highlight the options that are available to procurement for a given product and provide the information they need to select the right vendor based on their highest priority criteria. This could be lowest cost, highest quality, most expedient shipping, or any other factor.
• Helps protect your Company’s financial assets – An accurate vendor database reduces the chances of making an erroneous or fraudulent payment. Additionally, a robust and complete database will give you the information needed to ensure you are receiving the best payment terms and partnering with the vendor that will most benefit your bottom line.
• Strengthen internal controls and compliance – Accurate vendor “set-up” will not only help avoid duplicate payments, it is also considered best practice to ensure internal controls. Requiring the W9 or Tax Identification Number (TIN) is a critical step in the proper set-up of new vendors.
• Forms the foundation for effective sales and revenue reporting – Producing reports when the information source is consistent allows the Company to effectively compare results and evaluate performance.

With such an important function in your Company, you will want to do everything possible to ensure the vendor database your systems are relying on is as complete, accurate, and robust as possible.  Here are a few considerations to help make that happen:

• Make sure you have the right person in the vendor database role – Interestingly, for most AP departments, vendor database maintenance is considered an entry level position.  However, the responsibility of the role is anything but entry level.  This is a critical position impacting many other departments, and where mistakes can be detrimental to the entire Company.  Hire with this in mind and ensure that this person has a complete understanding of the importance of the function.
• Periodically compare your vendor database to the Customer Master File in Accounts Receivable – Although you may believe that you do not sell to the same entities from which you buy, it is more common than you may think.  Company mergers and acquisitions create strange bedfellows, and periodic comparisons between the AP vendor database and the AR Customer Master can help to identify related vendors.  This knowledge can then be used as leverage for collecting balances due from vendors which are no longer considered active and also to maximize your negotiating power with current vendors.
• Ensure segregation of duties – Although this can be difficult in smaller companies, it is critical that any associate who has access to add/modify vendor records does NOT have the ability to pay invoices, and vice versa.
• Establish rules (not guidelines) regarding the information and documentation required to set up a new vendor – Once established, do not deviate from those rules for any reason- even if senior management insists that “it’s OK this time”.  These rules should also include a research routine that is performed on each new vendor.  Google searches should be supplemented by searches against government lists of sanctioned entities.  E.g., Office of Foreign Assets Control and Foreign Terrorist Organizations.  More information can be found at:

• • https://www.treasury.gov/resource-center/sanctions/pages/default.aspx
  • https://fas.org/sgp/crs/terror/IF10613.pdf

• Refrain from including information that will quickly become outdated – Avoid adding personal contact names and email addresses.  DO include a Company website where much of this information can be obtained.  This will save time and eliminate the need to frequently update information.
• To minimize duplicate records and potential fraud, automate TIN validation internally and through the IRS – Unique tax ID numbers are the most effective means of preventing duplicate or fraudulent vendor payments.  An automated internal program can be utilized to compare with existing numbers.  Implementation of the IRS TIN Matching service when a vendor is on-boarded will independently confirm the validity of a name/TIN combination.  This is a FREE SERVICE from the IRS and is available interactively (for up to 25 records with immediate results) or through bulk matching.  Click here for more information.
• Ensure that names and numbers (including tax ID, street addresses, and zip codes) follow consistent conventions – This information can often be written in multiple formats and styles – inhibiting an effective comparison or distorting report information.  Similarly, names – particularly initials and abbreviations – must use consistent patterns.  (For example, JC Penney is very different from J.C. Penney, which is also different from JC-Penney.)
• Deactivate unused vendors on a regular basis – Vendor accounts which have been dormant for an established period of time (Best practice is considered 18/24 months.) should be flagged and blocked from use.  Updated documentation is then required to reactivate the vendor.

Your vendor database is one of the most critical building blocks to your Company’s success.  Although easy to take for granted, it is important that this function does not get short-changed.  SAS has a great deal of experience in providing our clients with reassurance they are working with a top-level vendor master database.  Our services include Vendor Master cleansing, vendor analysis, and other related vendor tasks.

For Vendor Master Best Practices – Click Here

Contact SAS to learn more about Vendor Master Management