After wrapping up our in-depth exploration of Accounts Payable transformation – where we decoded the journey from invoice receipt to payment – it’s time to spotlight a less glamorous but critical part of the AP ecosystem: Vendor Master Data. Think of it as the bedrock upon which every successful AP transaction stands. Without clean, verified, and properly maintained vendor records, even the most advanced invoice processing system can falter.
In this new series, we begin with the fundamentals of Vendor Master Data – what it entails, the types of vendors organizations typically engage with, and how the creation process works behind the scenes.
Understanding the Different Vendor Types
Organizations generally maintain three types of vendor records, each serving distinct procurement needs. Purchase Order (PO) vendors are driven by the sourcing and procurement team, who analyse spending patterns to identify core goods and services. These vendors are then funnelled into structured PO-based purchasing, allowing organizations to gain better compliance, control, and cost efficiency.
Next are non-PO vendors. These are typically utility companies, government entities, or local vendors that support short-term or ad-hoc needs. These vendors don’t fall under the traditional PO model but are still essential to day-to-day operations.
Lastly, One-Time Vendors serve niche, immediate requirements and are often used for specialized services or small, one-off purchases. While they aren’t used often, their proper creation and verification remain just as important.
Requesting Vendor Creation: Where It All Begins
The creation of a vendor record starts with a formal request, but the source of the request can differ. For PO vendors, the procurement team typically raises the request following a finalized contract. For non-PO vendors, it’s usually the internal requestor of the service or goods, or in some cases, a received invoice that prompts vendor creation. One-Time Vendor creation is similarly driven by immediate need from the requestor.
This initial request is crucial – it sets the stage for the quality and accuracy of the vendor record. Incomplete or incorrect information at this point can create bottlenecks downstream during invoicing or payment.
Verification: The Cornerstone of Master Data Accuracy
Before a vendor can be added to the system, their information must be verified. This is a critical step to ensure data integrity, mitigate fraud risk, and comply with internal control standards. The verification is usually done through direct contact with the vendor or via a bank-attested letter sent from an official vendor email address.
Verification includes validating the vendor’s name and address, as well as banking details such as account name, number, bank name and address, and relevant SWIFT or routing codes. Only once this information is verified should the record move to the next step.
Vendor Record Creation and Approval
Once the details have been verified, the vendor record is created in the ERP system. However, this isn’t the final step. The record then goes through an internal approval process – usually by the procurement team or a designated vendor manager. This gatekeeping step ensures that only legitimate, fully vetted vendors enter the system, reducing the risk of duplication, fraud, or erroneous payments.
Approval involves a second round of checks, where the verification artifacts are cross-checked before the vendor is made “active” in the system and ready for transaction processing.
The Heartbeat of AP Efficiency
Vendor Master Data may not always be in the spotlight, but its influence is far-reaching. Inaccurate vendor records can lead to invoice mismatches, payment delays, compliance breaches, and increased operational costs. On the other hand, a clean and well-managed vendor master supports everything from seamless invoice processing to strategic procurement.
At Right Path, we believe that AP transformation starts at the source – with high-quality data and disciplined processes. Stay tuned as we explore Vendor Master Maintenance in the next instalment, where we’ll discuss how organizations can sustain this data quality over time.
Explore our website to learn more and claim your free Procure-to-Pay (P2P) assessment. Let’s build smarter foundations for your finance function – starting with the master data that powers it all.
