Creating Clean Vendor Master Files the First Time

Everybody has got a space in their life that really needs some organization. Maybe it’s the garage, where tools and boxes balance precariously against every wall, threatening to tumble down each time you scoot the car door open. Or, if you’re lucky, it’s just a junk drawer in the kitchen, bursting at the seams with things that never belonged there in the first place. How did it get this way? Blame it on the “I’ll do that later” attitude. Then once a year, you wipe away the cobwebs and spend a frustrating day or two organizing – and there goes the week-end.

In my business, I find the same phenomenon happening when clients take on the enormous task of cleaning up their Vendor Master Files. While it may be a great jump-start, companies would benefit from implementing systems to create clean Vendor Master Files from the beginning.

This is one of the key areas where we see a great deal of issues. So many duplicate payments can be traced back to an originating unclean Vendor Master File, as a result of poor data entry standards on this fundamental front-end task. If we determine that 60-70% of duplicate payments are the result of only two issues, one being invoice data entry and the other being unclean Vendor Master Files, then the importance of this issue becomes even clearer. Reducing the error rate in just one of these areas can have a significant effect on overall bottom-line cash flow and profits.

The instinct on a daily basis, or even on a larger-scale during a merger or acquisition, is to simply get Vendor Master Files created and out of the way as quickly as possible. The importance of accuracy or searching for duplications falls to the wayside, likely never to be returned to again. Only when a duplicate payment crops up is the potential root cause discovered, usually the result of a duplicate Vendor Master File. During our audits we see not just duplicate vendor names but even complete duplications: right down to the addresses. Tiny, subtle errors, as little as a misplaced apostrophe, are usually the culprit.

Many companies make cleaning up Vendor Master Files a special project that occurs only once a year at the most. Yet a more effective approach would be the implementation of consistent processes that define how to create a clean Vendor Master File from the onset. This is where naming standards and conventions become critical because even the best ERP systems assume that only one Vendor Master File exists per supplier. ERP systems are not designed to control or flag multiple Vendor Master Files when a duplicate exists.

Additionally, the other component of maintaining clean Vendor Master Files happens at the end of the relationship. Inactivating unused vendors after a defined time period creates a cleaner system overall. To see what timeframe works best for your organization, start with those vendors you haven’t used in 48 months, then dial that number back over time as it aligns with your business. I think as you go through this project the first time, you may be amazed at the number of vendors you find in your system that were created and never, ever used.

While spring cleaning is always a good idea, the project is easier to manage when consistent maintenance has occurred throughout the year. Resist the urge to pawn off Vendor Master File clean-up solely to the “special projects” department. Instead, implement business practices to create clean Vendor Master Files from the start and then that spring cleaning job will be much easier to handle… cobwebs and all!

To know more, join Karl Andersson, CEO of Technology Insight in a series of webinars dedicated to Best Practices in Accounts Payable. Click here to view the list of upcoming webinars.

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