5 Ways Your Vendor Master Data Mistakes & Fraud Are Costing You Money
Mistakes are going to happen in any business, at least any business that involves humans. There really isn’t any way around that.
by Angela Sarno
VP Marketing
PaymentWorks5 Ways Your Vendor Master Data Mistakes & Fraud Are Costing You Money
This blog was originally published in 2020 but was updated in October 2023 for accuracy and comprehensiveness – and to re-emphasize just how much vendor master data mistakes can cost your organization.
While it would be wonderful to eliminate the scourge of vendor management mistakes completely, that just isn’t realistic. Instead, the goal should be to minimize exposure to risks while decreasing the high costs that come with onboarding and maintaining your vendor master data.
And make no mistake, the costs are indeed high. Benchmarking among our customer base indicates it costs $100-200 to onboard and maintain each of your vendors, each and every year you keep them on your vendor master! (Do the math, it ain’t pretty!)
Table of Contents
What is the Value of Vendor Master Data?
The Pitfalls (and Cost) of Bad Vendor Master Data Management
How Vendor Management Appreciation Day Can Help
Want Help Aligning Your Teams to Improve Your Vendor Master Data Management?
Want Regular Vendor Master Data Management Tips?
Want Personalized Guidance on Your Vendor Master Data Management Strategy?
What is Vendor Master Data?
Vendor master data, sometimes called supplier master data, includes general, transactional, and purchase-related data and information for your vendors. It includes basic information like name and address as well as more sensitive information like banking information.
And it’s very, very important.
Everything you need to know to be able to pay your suppliers is housed within the vendor master data file, which is usually co-owned by vendor management/procurement and accounting teams. This data includes tax ID, remit address, order address, and maybe certificates of insurance and certifications of HUB status.
On top of all of the valuable information, the vendor master data must also play nice with backend systems like accounts payable and the ERP system. Without these integrations, it’s really tough to simplify and streamline vendor onboarding and record management.
What is the Value of Vendor Master Data?
While vendor master data may seem boring and transactional, it is actually one of the most, valuable resources an organization has. Clean data has a ton of benefits, and it’s essential to make sure your entire procure to pay processes run smoothly.
Not only does good data mean less fraud, but it makes compliance much easier and opens up the opportunity to make better sourcing decisions, unlocking increased ROI.
Unfortunately, maintaining a clean data set requires time and resources. That said, automation is unlocking more efficiencies in vendor onboarding and management.
It’s pretty easy to see why taking care of this data makes sense. Yet every day, bad data, bad processes, and bad workflows wreak havoc on procurement operations and actually cost companies like yours millions of dollars. That’s not all; it also costs the time people spend away from their core functions and time wasted on unnecessary tasks. It’s a real nightmare – though it is preventable.
How? Let’s dive in.
The Pitfalls (and Cost) of Bad Vendor Master Data Management
1. COST: Employees outside of AP collect vendor payment information
You would never ask a goalie to take a penalty shot, a fireman to perform heart surgery or a lawyer to change the alternator on your car. It’s just not their job. So why are you asking someone who isn’t in procurement or accounts payable to collect tax IDs, remit addresses, and W-9s?
Expecting employees who aren’t familiar with collecting and vetting the credentials associated with vendor onboarding to do this collection, positions them as a ‘go-between’ to the vendor and your AP department. This not only opens your organization up to the mistakes that come with the other four items on this list, it wastes tons of valuable time.
While you may want your employees to have the say in who they do business with, having a central point tasked with collecting vendor master data and documents can strengthen operations.
It will eliminate many potential fraud vectors and reduce many of the hidden costs that go into the $100-200 you pay per year to onboard and maintain each vendor.
The costs to your organization:
- Increased opportunities for fraud
- Increased time spent onboarding vendors
- Non-AP employees spending time on functions not integral to their jobs
2. COST: Manual mistakes (aka the ‘fatfinger’)
The potential for human error runs the gamut from typos to using an old remit address to attributing a piece of information to the wrong company.
It’s also, shockingly often, just sloppy handwriting — ask anyone who has ever had to decipher a handwritten W-9.
If you are asking your AP staff to collect and input information manually from paper forms into the ERP, then I promise you, your data is not clean. And you are leaving things to chance.
On our recent podcast, Jenn Glassman speaks to this problem well:
The costs to your organization:
- Returned checks for incorrect addresses
- Charges for returned ACH for incorrect routing or account numbers
- Time and effort finding, correcting and reissuing payments
- B notice fines from the IRS for incorrect 1099s
3. COST: Accepting unconfirmed vendor information into your ERP
If you already have a main point that collects all of this vendor info, good for you! Here’s a follow-up question: are you leaving it up to an employee to use their own judgment to determine if what they have collected is legit?
And another, for good measure: are you also asking them to determine if changes related to what is already in your ERP (a name change or a banking change request) are legit? If so, you’re opening yourself up to a world of hurt.
Check out our blog on how NOT to do vendor verifications.
Giving your staff tools to confirm the vendor credentials relieves them of the significant stress of attempting to ascertain what is true and what is a scam.
By using third parties to confirm credentials like TIN, address and banking, your organization will have much greater peace of mind – and lower instances of fraud.
The costs to your organization:
- See #2
- Especially see #4
4. COST: Bad actors and social engineering
The possibility of payments fraud makes everyone lose sleep. Social engineering is the easiest way for a fraudster to steal your cash. It doesn’t even require the savvy of a computer hack (though it often starts that way).
Social engineering is essentially when one party convinces another party into doing something they believe is legitimate — usually involving transferring large sums of money into a fraudster’s bank account.
These types of fraudulent scams can happen on scales large and small– you probably read about them every day.
If your current process allows for payment details to be changed because your AP staff received an email with new banking instructions, then please put this risk at the top of your list of ways your vendor master is costing you.
Because sooner or later, someone is going to get fooled.
And it’s getting easier (and cheaper) for fraudsters to perpetrate these attacks. Just listen to what Linda Miller, CEO of Audient Group has to say about it:
The costs to your organization:
- Paying a fraudster instead of your vendor
- Potential litigation with your insurance company to cover the money you lost
- Reputational damage
5. COST: Storing bank accounts in your ERP
This might be a fraud vector that some people don’t worry about too much. Because you trust your employees, right? Depending on who has access to your ERP, someone on the inside could change bank account details.
This risk alone would be enough of an argument to get out of the business of storing bank account numbers, but you’re also vulnerable to bad actors on the outside being able to hack into your ERP and change an account number.
So finding a partner or system that takes banking accounts out of your ERP could eliminate a huge fraud vector that you might not even be considering at the moment.
It’s a point that shouldn’t be overlooked, especially considering the fact that your vendor management team is not made up of security experts, as Jens Brown of Huron puts so eloquently:
The costs to your organization:
- Another opportunity for fraud (inside and outside)
- Reputational harm (no one wants that headline)
Taking necessary precautions to reduce fraud and human error is just smart business. Audit these five areas now and preemptively put in roadblocks will save you time and money – and allow your employees to mind your business and stop worrying about threats.
How Vendor Management Appreciation Day Can Help
One of the big things the article above highlights is just how agile vendor management teams need to be just to get everything done.
We’ve known this for a while, and we also know that these teams don’t always get the recognition they deserve.
So we’re changing that.
We’re rallying everyone in vendor management to come together in honor of one of the most important, and usually under-recognized roles across industries.
We hope you’ll join us in observing Vendor Management Appreciation Day (VMAD) on December 12th.
VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.
We’re also celebrating by releasing spectacular tools and templates each month.
Learn more here, and grab some free vendor management goodies.
Want Help Aligning Your Teams to Improve Your Vendor Master Data Management?
Explore our blogs below. They’re filled with action items you can implement right away.
A Vendor Management Template You’ll Actually Use
Who Cares About Vendor Management? The Treasury Function We Don’t Discuss
Tackling Accounts Payable Challenges: Effective Solutions
Vendor Management Tips From the Experts Themselves
Vendor Verification: How NOT to Do it and What to Do Instead
Want Regular Vendor Master Data Management Tips?
Want Personalized Guidance on Your Vendor Master Data Management Strategy?
