Building a Better Foundation With Your Supplier File

Too often, the work being done to ensure the security and compliance of vendor payments is seen as a logjam to business. However, the data within your supplier file is relied upon by your entire organization — from procurement and risk to finance and business owners. Decisions are made and risk is assessed — or not — based on what has been entered into your enterprise resource planning (ERP) system.

With so much at stake, why do so many construction companies consider vendor onboarding and management as a tactical, clerical function rather than a strategic opportunity?

This article discusses the strategic importance of your supplier file and the need to transform vendor management from a tactical function into a strategy for better business.

The Foundation Is Broken

Consider how your organization sets up a new vendor in its ERP system, especially one to which you may be paying millions of dollars. The process likely involves creating a vendor form, exchanging sensitive information via email, and passing all of this information through several sets of internal and external hands. The information on the form may or may not be verified against third-party sources. In addition, the process for setting up a new vendor likely isn’t documented.

This is the foundation of your organization’s entire peer-to-peer process; systems, processes, and functions depend on the output of this effort.

Club Fraud

A broken foundation leads to human error, and social engineering fraud relies on human mistakes to succeed.

Think about your ERP system as a foyer to a club that everyone wants to join. In that foyer, you have employees who are checking IDs while they are also paying all of the bills and answering hundreds of questions each week by phone and email about who is entering the building, why the line is so long, and if they could let someone in the back door “just this once.” Also, the club has six other entrances besides the foyer, an unlocked window in the restroom, and an open loading dock to the kitchen.

While this scenario might seem extreme, it’s the reality of vendor desk staff in companies of all sizes. Vendor desk personnel are juggling too many inputs to maintain a tight and trackable process.

It’s Time to Change the Paradigm

Bad or incomplete vendor management processes create three very real pain points:

Friction
Fraud and compliance risk
Incomplete payables strategy

Friction

Automating the largely manual vendor onboarding and management process can have an immediate impact on your entire organization, not just the vendor desk staff. Automation can also eliminate phone tag between vendors and your accounts payable (A/P) staff by removing them from the responsibility of collecting and submitting vendor documents.

A digital supplier onboarding platform can help automate the vendor management process. Many supplier portals collect and update vendor data, but keep in mind that unless that portal is vetting the information submitted, you still have a manual “paper form” process to support it.

Look for a platform that has application programming interface (API) integrations with third-party sources like the IRS to check tax IDs or the Early Warning System to vet bank accounts. Ensure the platform can automate updates to your existing suppliers, not just the new ones.

Automating as much manual effort as possible gives your vendor desk staff time to be thorough, identify problems, and solve them before they get to your ERP system.

So how important is the time that automation can save? Exhibit 1 shows the benchmarks related to vendor desk time spent on single, issue-free new vendor onboarding.

Additionally, as shown in Exhibit 2, the customer-provided data includes the time spent on vendor onboarding by employees outside of your A/P and procurement teams.

Overall, 71 minutes were spent on each new vendor onboarding event.

An additional aspect of friction-related costs is rooted in visibility — or rather, the lack of visibility. If vendors and business owners don’t have a way to check on the status of their onboarding at any given time, then they take up even more of your vendor team’s time and energy by calling and emailing.

Ask your vendor desk staff to spend 1-2 weeks tracking how many queries they have to answer regarding status updates on onboarding as well as invoice payment status. Multiply that number by 3-5 to get the number of minutes spent dealing with these issues. This will help you quantify how much company time is being spent on tasks that don’t actually move work forward, which will provide you with a pretty strong start to your business case for automating the onboarding process.

Fraud & Compliance Risk

The news is full of stories about social engineering fraud, where a fraudster impersonates a company’s vendor and tricks a staff member into changing payment information in its ERP. The best cyber-defense tools and training are not always enough to prevent a well-intentioned employee from being fooled, especially as vendor desk teams are under immense pressure to handle their workload in a timely fashion.

According to the Association of Finance Professionals (AFP), between 2015 and 2022, an average of about 75% of organizations have been victims of attempted or successful fraud attacks.¹ And that’s just the organizations that chose to report it.

Organizations are at the most risk of being attacked when an existing vendor reaches out to change banking information or when a new vendor is onboarding with a company for the first time.

It’s important to understand how many new vendors are added to your supplier file each year. An often-overlooked risk is when updates are made to an existing vendor record. Across a vendor network, at least 30% of existing vendors change some piece of information each year,² most often their payment information.

Even if you have invested in automation with a supplier portal that has an integration into the Early Warning System, a process should also be in place for bank accounts that do not pass the Early Warning System check. This is where the process can break down and be exploited by a fraudster, so extra care must be taken to prevent sending out a fraudulent payment.

The following questions can serve as a best practice for banking verifications:

Do you have a documented process for how to verify banking changes to existing vendors?
Is this process checked regularly to ensure it is being followed?
Has your insurance company audited the process and declared it insurable?

Compliance risk brings another set of expectations and requirements to the vendor onboarding process, from the Office of Foreign Assets Control (OFAC) and debarred vendor checks to whether or not you have an updated certificate of insurance on file.

In all cases, the burden of this research generally falls to the same people tasked with vendor onboarding. Calculating the time spent on checking these lists is the first step, while the second step is determining if these checks are happening with each issued purchase order.

Incomplete Payables Strategy

The way in which your company pays its vendors is of strategic importance to your supplier file. Too often, organizations are onboarding vendors and then trying to get them to opt into their payment method of choice. Meanwhile, invoices are coming due, and checks are being cut.

Understanding how you want to pay a vendor and incorporate that understanding into your vendor onboarding is key to improving the likelihood of the vendor choosing your preferred method. Marrying these two steps saves time, reduces costs, and can greatly impact your organization’s time value of money.

For example, if your organization already has a virtual card for vendor payments, then you are likely aware of how cumbersome and disruptive a bank-managed campaign can be to your operations. With automated supplier onboarding, you have the opportunity to ask the vendor if they will accept your preferred payment method.