Solving the Vendor Master File Conundrum

A Whitepaper

By Michele Arndt
Director of Client Value, APEX Analytix
TABLE OF CONTENTS

Introduction: The Benefits of a Vendor Master File Cleanup .......................................... 3

Tips and Techniques for Cleaning Your Vendor Master ................................................... 4

Making the Case and Setting the Stage ......................................................................... 4
Conducting the Cleanup ................................................................................................. 5
STEP ONE: Identify Inactive Files, Archive and Purge ............................................... 5
STEP TWO: Prioritize and Review What Remains .................................................... 6

Keeping Your Updated Vendor Master File Clean ............................................................ 7

Best Practices for Avoiding Future Problems ................................................................ 8
 Establish Clear Standards for Vendor Setup and Coding .................................. 8
 Implement a “Look It Up First” Policy ............................................................... 8
 Establish a Fixed Interval for Cleanup ............................................................... 9
 Implement a Vendor Portal ............................................................................. 10

Summary ........................................................................................................................... 10

Appendix ........................................................................................................................... 11
Best Practices for Protecting Your Vendor Master ..................................................... 11
Coding Standards ..................................................................................................... 11
Vendor Profile Form ................................................................................................. 14

© 2010 APEX Analytix® - All rights reserved 2

Introduction: The Benefits of a Vendor Master File Cleanup

Is your vendor master file out of date and riddled with duplicates? Does it fail to give
you a clear view of which vendors are related to each other under the same corporate
entity? If so, you’re not alone. It’s a common conundrum experienced by businesses
around the globe.

In most instances the dilemma is fueled by what I call the “too syndrome.” Companies
have too many vendors housed on too many systems. There are too many owners of
the vendor data, and all of them are too afraid to purge out-of-date information.

Despite those hurdles and the enormous effort involved in cleaning up a vendor master,
the payoff can be significant. Here are a few of the many good reasons for biting the
bullet and getting the job done.

 You’ll reduce costly duplicate payments.

APEX Analytix routinely conducts recovery audits for some of the largest and most
successful companies on the planet. And our experience shows that almost 30 percent
of all duplicate payments are the result of duplicate vendors and vendor coding issues.
If your company is like most, you will find it well worth the effort to take stock and clean
your vendor master file. Preventing duplicate payments has a direct financial impact
and is less costly than trying to recover a duplicate payment once it has gone out the
door.

 You’ll find it easier to detect and prevent fraud.

When you clean your master vendor file and establish controls to keep it that way, you’ll
make it easier to detect questionable companies and attempts to circumvent your
internal controls. The Association of Certified Fraud Examiners estimates that the
average company loses five percent of its annual revenues to fraud. But you can take
prudent steps to make certain your firm isn’t one of them.

 You’ll boost productivity.

A smaller vendor master file can dramatically reduce your processing time and make it
easier to query your production system. If your file is fat and sluggish, you’ll find it
harder to locate vendors already in your system. That means you are more likely to
establish a duplicate vendor record.

Keeping a leaner vendor master also keeps you from spending time maintaining files
that could have been purged from your system long ago. One expert with 70,000 active
vendors told us her AP Shared Services team processed tens of thousands of updates
annually. Fewer vendors in your active file will mean fewer updates.

© 2010 APEX Analytix® - All rights reserved 3

 You’ll boost your audit recoveries.

If you mistakenly pay an inactive vendor, the company has little incentive to return the
payment. But active vendors will be more likely to cooperate rather than jeopardize
future business. Keep your vendor master current to boost your recoveries and reduce
the risk to your bottom line.

 You’ll find it easier to deliver new value to your business.

A leaner and more accurate vendor master means increased visibility into the data it
contains. You’ll be able to analyze and manage spending and promote strategic
sourcing decisions that can deliver significant cost-savings to your business. One
example: An up-to-date vendor master will show which vendors operate under the
same corporate umbrella. That means you will have a clearer understanding of your
total spending with the company – enabling you to negotiate better discount terms and
to manage your debit balances more efficiently.

Tips and Techniques for Cleaning Your Vendor Master

What’s the best approach for cleaning your vendor master? The tips and techniques
that follow are based on our experience working with large and successful companies in
a variety of industries. In addition, we had in-depth conversations with two individuals
who have significant experience in the vendor master file arena – a manager of specialty
payables and vendor maintenance for a large global bookseller…and a manager of
accounts payable (AP) shared services for a global entertainment and media enterprise.
Both gave us extraordinary insight into their processes and lessons learned.

Making the Case and Setting the Stage

Depending upon the size of your organization and the number of vendors you use,
cleaning your vendor master file can be a significant undertaking. One example: The AP
manager we interviewed has a team of 10 assigned to a multi-month cleanup project
involving 335,000 vendor records. Even if your vendor master is far smaller, you likely
will need to build a case for the time and resources needed to accomplish the task –
particularly if this is your initial clean-up or it has been a long time since your last clean-
up effort.

To get started, validate the scope of the problem. If your company uses APEX Analytix®
FirstStrike®, you can run a report that will help you quickly frame the issue. But even if
you don’t, there are techniques you can use. One alternative is to export your vendor
file to Excel and sort it for a quick review. If you have a large vendor file, try to quantify
your situation by focusing on all the vendors under just one letter of the alphabet and

© 2010 APEX Analytix® - All rights reserved 4

conduct a preliminary data analysis – paying special attention to duplicates and to
missing data fields. You will need to sort multiple times – starting with vendor name.
Then, sort on address and review again for duplicate addresses that reveal a duplicate
vendor. Then continue with the TIN number and other available fields. This can provide
you with valuable data on the extent of your problem and can help you garner the
resources and support you need.

One AP pro recommends that you surround this preliminary data with a thorough
description of what you hope to accomplish. “We started by telling our management
team how bad the problem was and why we wanted to engage in a cleanup process,
and then we framed it as part of a complete story,” she said. “We talked about the
benefits of having greater visibility into our vendor database, the technology we hoped
to adopt and the standards and governance that would guide us moving forward to
keep our vendor files clean and up to date.”

Securing support from your management is vital to achieving success, particularly if you
are tackling a large vendor file problem and require resources. Don't take this step for
granted. Craft your story with a formal presentation. A PowerPoint will help you
organize your story and present your recommendation in a form that will be taken
seriously.

One final upfront tip: Build a coalition of support. “Make sure your procurement
partners are on the same page,” one seasoned pro told us. “The term is ‘procure-to-
pay,’ not just ‘pay,’ and they have to be sold on the process as well.”

Conducting the Cleanup

So once you’ve set the stage and made your case, how do you get started? Here are
some tips, techniques and best practices to guide you.

STEP ONE: Identify Inactive Files, Archive and Purge

The cleanup process is simpler if you start by eliminating any vendor files you shouldn’t
spend time updating. You may be surprised at the results. Of the two firms we
interviewed for this whitepaper, one removed about 100,000 of the 335,000 vendors in
its master file by simply identifying those that were inactive, while the other purged
40,000 of its 100,000 vendors through that same process.

The vendor maintenance specialist we interviewed recommends that you start by

pulling three reports from your payment platform:

 vendors marked as inactive

 vendors established before a specified timeframe who have had no
activity

© 2010 APEX Analytix® - All rights reserved 5

  vendors who haven’t been paid since a given date, with no open invoices
pending

What timeframe should you use to define inactivity? There is no single standard. Some
purge vendors inactive for a year, while others maintain data for a longer period.
Regardless of the timeframe you choose, make certain you merge each of these three
reports into a single file. A vendor on your “inactive” report may also show up on the
“no activity” report and complicate your review process.

The next step is to review the data and archive records that you plan to purge. Some
AP organizations involve their internal client organizations in the process. One Fortune
100 firm, for example, sends the list of inactive vendors out to various departments for
an annual review.

“They know to expect it, and we give them three to four weeks to check into specific
vendors, and make decisions on whether the files can be purged,” says the firm’s AP
manager. “They also help us spot any obvious duplicates.”

Both experts we interviewed say not to be surprised if purging records is a tough sell.
You’ll need to be prepared to stand your ground and to make the case on the cost and
risk to your organization when your vendor master files contain inactive or out-of-date
records.

“One of the biggest push-backs I get is why we have to get rid of an inactive vendor,”
says the vendor maintenance manager we interviewed. “Some folks just don’t get it
and don’t understand that it’s always better to have a cleaner database.”

Archiving is a key factor in engendering support. “I assure clients who are reluctant to
purge a record that the information will still be available in our archive,” the AP
manager we interviewed added. “If someone comes to us to set up a vendor and tells
us they were in our system years ago, we’ll look in the archive and may reinstate the
vendor number or account. Or we may set up a new account and note that we used
them previously.”

STEP TWO: Prioritize and Review What Remains

After the initial purge, you’ll need to review the file again to eliminate duplicates and
identify questionable vendors. And one of your first decision points will be whether to
conduct the cleanup manually or use technology to help you do the heavy lifting.

Here’s where APEX Analytix® FirstStrike® software shines. It automates the time-
consuming task of analyzing vendor data for potential duplicates and for fraud risks, an
effort that would be nearly impossible to accomplish without some automated

© 2010 APEX Analytix® - All rights reserved 6

assistance. You will still need to review and act on the outcome, but you’ll have the
information you need at your fingertips.

FirstStrike® automatically cleans and standardizes the name, address and contact
information in your database prior to analysis. It also offers three reports that are
especially pertinent to the cleanup task:

 Multiple Remit To. The software identifies vendors with multiple “remit to”
addresses.
 Multiple Vendor Crossing. You’ll see a list of vendors who share the same phone
number, TIN number or other key data elements.
 Duplicate Vendor. FirstStrike® uses sophisticated algorithms to scan dozens of
factors, identify overlap in your vendor master and provide data on the invoices
paid against each so you can decide which record will survive. This results in an
actionable report – whether you’re analyzing 50,000 vendors or 500,000!

Similarly our FirstStrike® Fraud Detect module can quickly scan your master file and rank
vendors who represent the highest fraud risk.

Not ready for a software assist? Here are some tips for reviewing your vendor master
on your own.

Start by looking at the most critical record fields and tackle those first. The vendor
maintenance specialist we interviewed says her firm starts by reviewing any record
fields specifically related to compliance issues.

“We look at tax codes, tax identification numbers, foreign withholding and make certain
they are consistent within our records,” she said. “We then follow that by taking a look
at payment types and at duplicate vendors.”

As you analyze your file to uncover duplicates, remember that the process will take
multiple passes. Look at all possible variations on the company name, address and
other pertinent fields within the vendor record.

Keeping Your Updated Vendor Master File Clean

As you conduct your cleanup, you may discover there are underlying issues that can fuel
ongoing problems with your vendor master file. Plugging those trouble spots is one of
the most important steps you can take in keeping your vendor master clean.

It can take some digging to analyze what’s going on. Here’s how one AP pro described
the process in her own company.

© 2010 APEX Analytix® - All rights reserved 7

“We’ve been working for six months to identify why we get into this predicament,” she
said. “We have concluded that at least for us, most of the problems originate with the
initial creation of a vendor account. We aren’t capturing all the vendor information at
that time. Someone enters the information so we can pay an invoice, but they aren’t
capturing detailed data like the principal place of business versus the remittance
address or the ‘order from’ address. That’s a process-driven issue and one we hope to
resolve.”

Similarly, our vendor master expert says the cleanup process uncovered major learnings
for her firm as well.

“We discovered we weren’t using the vendor master structure in our ERP platform the
way it was designed to be used,” she says. “In some cases we had misused fields and
had highjacked them for other purposes to support internal processes. We’re now
going back to the basics and building a blueprint for a standards-based governance
environment.”

Best Practices for Avoiding Future Problems

As you conduct your own analysis and try to shore up your process controls, here are a
few best practices tips.

 Establish Clear Standards for Vendor Setup and Coding

If you do nothing else, establish consistent guidelines for how a vendor record is set up
and what coding standards you will use. What critical pieces of information will you
require before a vendor record is established? What signatures and backup
documentation are required? Have you included the legal verbiage needed to protect
you in the event that you mistakenly pay a vendor and need to recover the dollars lost?
When the record is entered into your system, will “street,” “avenue” and “drive” be
written out or abbreviated? Make certain you are using the latest IRS TIN-matching
standards. That includes entering vendor names in all caps – without periods, commas
or other punctuation.

The key is to adopt a methodology and remain consistent. In the Appendix to this paper
you’ll find some suggested standards for vendor setup and coding that you are free to
adapt for your own environment.

 Implement a “Look It Up First” Policy

Rally your AP team and buyers around a “look it up first” policy before establishing any
new vendor record.

© 2010 APEX Analytix® - All rights reserved 8

“I reiterate to anyone using our AP system to look up the vendor in all the possible ways
they might have been set up in our system, including division name and parent
company,” one of our pros said. “We also do a TIN number match to verify whether a
vendor is in the system and determine whether this is a division that needs a new
record of its own. Doing some due diligence and really digging first preempts a lot of
issues with duplicate records.”

The other pro we interviewed follows a similar methodology.

“At one point we had so many duplicates it was ridiculous,” she said. “Now we do a
triple check when we get a request to set up a new vendor. We ask and assume that
the person making the request checked the system, but our AP team makes two
additional checks. We look at name and address variations manually, and then our
system does a check as well. That helps us keep duplicates to a minimum.”

This is another area where APEX Analytix® FirstStrike® software can assist. A query
capability let’s you search across all companies in your database at one time when you
“look it up first.” You can search for a name, or better yet – a portion of the name –
which mitigates the chance of entering a duplicate vendor. You can even use the
FirstStrike® Fraud Detect module to ensure the vendor doesn’t match information in
your employee database. If there is a match, you have a clear tipoff of a fraud scheme.

 Establish a Fixed Interval for Cleanup

Once you’ve completed a vendor master cleanup, establish a fixed interval for follow-up
so you can address problems before they get out of hand. How often should you
conduct a cleanup? There is no one best answer. But here’s what our two experts are
doing within their own firms.

The AP manager we interviewed presides over 100,000 vendor records and has chosen
to establish a once-a-year cleanup. It is an established routine that the AP shop and its
clients plan for and expect.

The vendor maintenance manager for a firm with more than triple the number of
vendor records is moving towards a continual cleanup model.

“We’re establishing global standards for our vendor records and plan to build audit
reports that will help us identify violations,” she said. “Between those and the duplicate
vendor reports that FirstStrike® generates, we hope to be able to clean up problems
immediately on an ongoing basis rather than waiting five years to undertake a massive
effort.”

Whatever interval you decide is best for your firm, make certain you stick with it. The
risk to your business is too great if you simply let things slide.

© 2010 APEX Analytix® - All rights reserved 9

 Implement a Vendor Portal

During a recent global conference sponsored by the International Accounts Payable

Professionals, attendees were asked about their priorities for the coming year. One of
the top-ranked initiatives was implementation of a vendor self-service portal.

The APEX Analytix® FirstStrike® Vendor Portal is an easy-to-implement solution that

works with your existing ERP system and frees your support staff to focus their attention
on more complex tasks. Through a secure, web-based interface customized for your
business, vendors can get quick, accurate answers to questions.

With a clean vendor master, you’ll be poised to take advantage of this popular
technology and the productivity gains it can deliver. But you’ll also have an important
tool for helping you keep your vendor master clean.

“We have approximately 20,000 users who have relationships with our company’s
suppliers and use their services,” one of the pros we interviewed said. “They are the
middle man and our face to the vendor. That means vendors don’t know where to send
updates and changes. We plan to remove the middle man and have Accounts Payable
deal directly with supplier. We’ll direct them to a vendor portal to dictate and capture
the information we need up front at the point of registry. Once an account is created,
the vendor has a direct gateway to AP in the event their information needs to be
updated – from new contact information to certifications or a change in their financial
standing.”

Summary

Don’t be surprised if your first vendor master cleanup is really tough. But once you’re
across the finish line, you’ll have much more than a streamlined database. You’ll have
made important strides in improving your productivity and in protecting your company’s
profits from duplicate payments and fraud.

If you choose to use an outside vendor to help you with the cleanup task, ask lots of
questions about the process they use. You’ll need a firm that can bring technology to
the table and uncover problems that can’t be uncovered by a simple spreadsheet sort.

And above all, take steps to protect your newly cleaned file. Establish new processes
and audit your operations to make certain they are followed. Conduct frequent follow
up reviews to keep your vendor records current and consider adding continuous
monitoring technology. If you follow these steps, you’ll find your next vendor master
cleanup will be a breeze.

© 2010 APEX Analytix® - All rights reserved 10

Appendix

Best Practices for Protecting Your Vendor Master

Once you’ve invested in cleaning your vendor master file, you’ll want steps in place to
keep it clean. Here are a few of the many best practices that can help.

Coding Standards

Vendor Name

1. Enter the vendor’s official name (used to report earnings to the IRS) in capital
letters, without periods, commas or other punctuation marks.
Example: IBM, not I.B.M.
Example: JOHN T SMITH, not John T. Smith

2. Eliminate “The” if it is the first word in the vendor/payee name.

Example: Coca-Cola Company, not The Coca-Cola Company

3. Replace “and” with an ampersand.

Example: Ernst & Young, not Ernst and Young

4. Eliminate spaces before or after special characters, apostrophes and initials

Example: B&B Enterprises, not B & B Enterprises
Example: L’Italiano, not L’ Italiano
Example: 100% Incorporated, not 100 % Incorporated

Exception: If a special character falls between two words, leave a space before
and after
Example: Mickey & Co, not Mickey&Co

5. Don’t use dashes or slashes. Split the name or use two lines instead.
Example: Marks & Co (line one) Division of Lakewood Corp (line two) instead of
Marks & Co/Division of Lakewood Corp.

6. Enter numbers in the name field as numbers, instead of writing them out.
Example: 9 West, not Nine West

7. Do not abbreviate North, South, East or West.

Example: East Coast Supply, not E. Coast Supply

8. Do not add a space between names with prefixes.

Example: DeYoung, not De Young

© 2010 APEX Analytix® - All rights reserved 11

Vendor Address

1. Use the following standard abbreviations for street addresses, without periods:
Avenue Ave
Boulevard Blvd
Court Ct
Drive Dr
Expressway Expy
Freeway Fwy
Highway Hwy
Lake Lk
Lane Ln
Place Pl
Route Rt
Square Sq
Street St
Terrace Ter
Turnpike Tpke
Way Way

2. Abbreviate North, South, East and West in a street address, without periods.
Example: 120 S Baker, not 120 S. Baker or 120 South Baker

3. Spell out words in a city name in full

Example: North Hollywood, not N. Hollywood
Example: Fort Myers, not Ft Myers

4. Use numbers in street abbreviation versus words.

Example: 1st St, not First Street

5. Enter the names of US state sand territories and Canadian provinces using
standard two-character abbreviations.
Alabama AL North Dakota ND
Alaska AK Ohio OH
Arizona AZ Oklahoma OK
Arkansas AR Oregon OR
California CA Pennsylvania PA
Canal Zone CZ Puerto Rico PR
Colorado CO Rhode Island RI
Connecticut CT South Carolina SC
Delaware DE South Dakota SD
District of Columbia DC Tennessee TN
Florida FL Texas TX
Georgia GA Utah UT

© 2010 APEX Analytix® - All rights reserved 12

 Guam GU Vermont VT
Hawaii HI Virgin Islands VI
Idaho ID Virginia VA
Illinois IL Washington WA
Indiana IN West Virginia WV
Iowa IA Wisconsin WI
Kansas KS Wyoming WY
Kentucky KY Louisiana LA
Maine ME Maryland MD
Massachusetts MA Alberta AB
Michigan MI British Columbia BC
Minnesota MN Manitoba MB
Mississippi MS New Brunswick NB
Missouri MO Newfoundland NF
Montana MT Northwest Territories NT
Nebraska NE Nova Scotia NS
Nevada NV Nunavut NT
New Hampshire NH Ontario ON
New Jersey NJ Prince Edward Island PE
New Mexico NM Quebec QC
New York NY Saskatchewan SK
North Carolina NC Yukon Territory YT

6. Use the following zip code formats

United States: NNNNN-BBBB* or NNNNN-NNNN*
Canada: ANABNANBB

*N = numeric, A = alphanumeric, B = blank

7. Use the following address line format

Address Line 1 = extended name, street address or PO Box
Address Line 2 and 3 = street address, apartment or suite number
Address Line 4 = city, state and zip code (this is a three-part line)

8. Use the following format to indicate a foreign country

The bottom line of the address shows the country name only, printed in caps.
The postal zone, if any, should be included with the city on the preceding line.

Susan Smith
10642 Beaumariss Rd
Edmonton AB T5X 5E7
CANADA

© 2010 APEX Analytix® - All rights reserved 13

Vendor Profile Form

Business Name/Taxpayer Name (Exact Legal Name):

Federal ID Number/Social Security Number:
Parent Company (if applicable):
□ Domestic □ Foreign

Business Type: Officers:

 Corporation Principal/Owner:
 Partnership Chief Executive/President:
 Sole Proprietorship CFO/Controller:
 Individual

Contact Name for Negotiations: Telephone:

E-mail:
Contact Name for Billing Inquiries: Telephone:
E-mail:

Primary Remittance Address: Physical Business Address:

Address 1: Address 1:
Address 2: Address 2:
City: State: Zip: City: State: Zip:

Telephone Number: Fax Number:

Company Website (if applicable):

Please attach at least three of the following:

Proof of Existence: ο - Corporate Charter ο - Federal Tax Return
ο - Recent Audited Annual Report ο - Vendor Contract/Agreement
ο - City/County Business License ο - Product Catalog
ο - Sales Tax Certificate ο - 1099
ο - IRS Document/Notice ο - W-9

Description of Business (or commodity code, i.e. SIC, NAICS, etc.):

Please check techniques you are currently using with your customers:
 Evaluated Receipts Settlement (ERS)
 Electronic Data Interchange (EDI)
 Electronic Funds Transfer (EFT)
 Diskette EDI
 On-line Pricing Catalog

How would you like to receive payments? □ ACH □ Wire □ Check □ Other
____________________
Estimated Sales Revenue from [COMPANY]:

I hereby certify, under the penalty of perjury, that to the best of my knowledge, the information
presented here is true and correct.

Respondent’s Name: Respondent’s Signature:

© 2010 APEX Analytix® - All rights reserved 14