The Benefit of Investing in a Clean Vendor Master:
A Calculation
All day long we hear from customers and prospects alike that their vendor master data is ‘a mess’, ‘out of date’ and ‘full of duplicates’. We have published in the past about the hidden ways your vendor master is costing your organization with both fraud risk and compliance issues, but we understand that many organizations find it to be a challenge to quantify those risks in dollar terms when working towards making an investment in automation and clean up.
We get it, it can be overwhelming to nail down the myriad ways a messy vendor is costing your organization. We’ve spoken with countless customers and prospects and gathered for you these three factors you can, and should, consider when creating your cost/benefit analysis.
- Onboarding time per vendor (both new onboards and changes to existing vendor information): Calculate each type of vendor interaction in minutes spent for your AP/Finance/Procurement Staff. Using the average hourly rate across these positions, you will have what it is costing your organization just to gather the required information needed to pay a vendor. (AKA: what it is costing you to spend money!)
| ERP lookup – does the vendor already exist? |
| Manual Review- do we have all in the info we need? |
| Data Entry- inputting new or changed info into the ERP. |
| Communications: total time spent by staff answering questions/getting clarification from business owners or vendor regarding onboarding |
Add them up and multiply by how many times you do this each year. (We’ll bet it is not a trifling amount.)
- The costs of third party lookups you are currently using (tax ID, sanctions checks): each of the databases you may be using to verify vendor identity info likely has a subscription or per use cost. Calculate costs based on actual historical vendor data for new additions and existing vendor changes. Then add the time (using the hourly rate above) the employee spends doing these check ups to the total.
- Calculate your risk exposure: specifically, your risk exposure to financial losses due to payments fraud scams. The AFP reported this year that 74% of organizations were the target of an attempted or actual payments fraud scam in 2020. With numbers like that, it is not if, but when your organization will fall victim. To calculate the amount you can expect to lose to one of these scams in any given year, use this simple formula:
With these three figures, you are well on your way to a solid dollar amount you could be saving with an investment in vendor automation and clean up. There are, however, many additional pieces that can give you a more nuanced and specific understanding of the real cost of your vendor master, for example:
- Hourly cost of business owner time chasing vendor credentials – how much time does the internal business owner spend onboarding and asking invoice status questions? What is the worth of that person’s time to the organization?
- Inaccurate 1099’s and return check costs – calculate B Notice violations, the time spent finding accurate info, and the cost of uncashed/returned checks.
- Sanction checks with every PO issued– we have yet to find an organization that is airtight on checking sanctions status with every PO issued. There is risk exposure in not doing this diligence, and hard and soft costs in doing this diligence. Both should factor into your cost/benefit analysis.
If this still feels overwhelming, we can help! Send us three quick data points and we will give you a hard dollar number to show your savings. We’ll even show you our math.
You can also read our free guide:
