In the Accounts Payable process, for many companies, the greatest effort (and cost) is directly tied to headcount that is focused on resolving discrepancies or fixing errors.  Transactions that are “error-free” either require no manual intervention or are quick and easy (and low cost).  While errors can occur in the ordering process, by the supplier, or in the receiving process, far too often vendor file problems are the culprit.  Given that the vendor setup process is most often managed directly in Accounts Payable, with a little attention, most vendor master file problems can be avoided.

A recent Peercast^TM in the Accounts Payable (P2P) research area featured a large global company with a regional center processing Accounts Payable transactions for the U.S., Canada, and Mexico.  Because the company does business in over 25 countries, the vendor setup process follows a standard process globally, with entries performed by one of 3 regional Shared Service centers.  For the featured company, keeping a clean vendor master file is important to ensuring quality processing, given annual volumes that include 1,300 vendor adds, 5,000 updates, and 4,300 vendors who are active.

During the discussion, our feature company described their rigorous process for making additions or changes to the vendor file, including:

• Requiring a W-9 or W-8 Supplier setup form for every new vendor setup request that is approved by a manager.
• For updating an existing vendor, requiring documentation that might include an invoice, an email, or an updated W-9 from the supplier.
• A vendor merge when a vendor name or tax ID changes requires a new W-9 or W-8, and documentation about the name change (if applicable)
• On a monthly basis, they make vendors inactive on a “per company location basis” when there hasn’t been activity at a company location for 18 months.
• Also on a monthly basis, vendors with no activity at any company location for 18 months are made inactive at a header level, with more documentation required for reactivation.
• Reactivations require documents.

Here are a few of the control points from a streamlined vendor master file that were discussed by the featured company:

• Consistent documentation for all changes to the vendor master file.
• A consistent naming convention for vendor names and addresses that prevents duplicate information in the master file.
• A full audit review of changes to the master file is performed on a daily basis, with a review to make unused vendors inactive completed on a monthly basis.
• The vendor record must be active at both a header and a site level for a payment to be made.
• Real-time taxpayer identification number matching is completed as part of the vendor setup process.

An iPolling^TM question supporting the Peercast^TM collected data on the average setup time for new vendors and the percentage of the vendor database that was considered to be inactive.  For vendor setup times, 50% of the companies complete the setup within 2 days, with 22% taking 3 days or longer.  The remaining 28% complete the vendor process in less than one day.

When looking at the percentage of vendors who are considered inactive, 61% of companies have over 50% of their vendors who are considered inactive  Interestingly, 11% of the companies indicate that they either don’t measure or don’t distinguish, between active and inactive vendors in the vendor master file.

Because cleanliness of the vendor master file is a critical part of an efficient Accounts Payable (and P2P) process, controlling the process for creating vendor adds and making updates is of utmost importance.  As important is the process for segmenting the file to ensure that inactive vendors aren’t included in the pool of vendors who may be selected for possible payment.

Here are some additional comments from members regarding streamlining the vendor master file:

• 2 days is the maximum for an approved request to be completed. This does not include the wait time for approvals to be obtained (which we do not measure) or the amount of time it takes for someone to provide missing required data.

• The vendor creation process has a 48-hour turn-around requirement as part of our SLA, although this is only achieved when all the data provided is correct. The volume of “inactive” vendor accounts is around 80%.

• We have far more inactive vendors in our system than active. We review our vendor master at least once a year and for those with no activity in the last 18 months to 2 years, we make inactive. This also applies to vendor sites, so we may have the vendor as active, but it may have several inactive sites due to no activity. This helps to reduce errors in selecting the wrong vendors or wrong remittance/purchase sites.

• Setting up a new vendor in our end-to-end process depends on several aspects, such as type of supplier, parties involved, supplier response back, and audit process. For inactive vendors, we run a monthly process identifying those vendors that don’t have purchases and payment activity after 15 months and inactivating them in our system.

• Our SLA is 48 hours to approve the supplier into the system using SLC (SAP).  Of course, this is if all the correct information is provided, otherwise, we would reject and the supplier would have to provide the required information. Our supplier base is approximately 75% inactive. We go through an exercise and block suppliers that do not have any invoice activity with us for more than 18 months.

• The average of two days is based on whether or not missing information is needed from the vendor. Our percentage of inactive vendors is based on the fact that we normally do not delete vendors from our system, but we review vendors quarterly for inactivity and place them in inactive status after a specified period of time has passed.

•  We are currently averaging around 4-5 days for completing the entire vendor setup process. This includes wait times for approvals, which is the primary cause of delay.

How streamlined is the administration of your company’s vendor master file?  What is your process for reviewing the vendor file to ensure only active vendors are listed?  Do you complete the review process on a weekly or monthly basis?

Who are your peers and how are you collaborating with them?

“Peercasts^TM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer Mail^TM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees. 

 “iPolling^TM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer Mail^TM, members can easily communicate at any time with others who participated in iPolling.