Three Things Going Wrong With Your Vendor Onboarding Process

by Angela Sarno

VP Marketing

Three Things Going Wrong With Your Vendor Onboarding Process

The vendor onboarding process is a lot more involved, important and strategic than most people give it credit for. Those outside of the vendor desk often view the role as clerical or simply focused on data entry. And they are wrong.

At its core, vendor onboarding is a key element that allows a business to function. It keeps the wheels turning and the business operating by onboarding and managing essential vendors.

And if the rest of the organization doesn’t pay it the respect it’s due, it can also be a giant doorway to fraud and financial loss.

Because the vendor onboarding process can be complex and winding, it’s easy to overlook seemingly “small” things that could be creating big risks. To shine a light on some of the potential problems, we’ll walk you through three things that might be going wrong with your vendor onboarding process.

A Bird’s Eye View of the Vendor Onboarding Process

Three Things Going Wrong With Your Vendor Onboarding Process

#1. People are asking your team to break the process – all of the time

#2. They want to, but your team doesn’t have the time to follow your process

#3. Because of #1 and #2, it’s getting impossible to insure

How to Fix Your Vendor Onboarding Process

#1. Write everything down and document ALL exceptions

#2. Make the vendor onboarding process doable

#3. People and paper trails make you more insurable

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A Bird’s Eye View of the Vendor Onboarding Process

A vendor onboarding process allows organizations to invite, vet, verify, and onboard new vendors to the ERP or vendor management system.

Each organization’s vendor onboarding process may look slightly different depending on the vendor criteria that exists; however, there are several steps that every organization needs to do.

You’ll need to collect and verify each vendor’s information. This includes the vendor’s name, business type, address, product/service info, tax ID, insurance coverage, diversity status, and any special designations.

You’ll need to assess vendor compliance and identify any risks associated with doing business with a vendor. This includes scanning sanctions lists at the time of onboarding and every subsequent time you issue a PO throughout the relationship.

You’ll need to verify banking ownership information and manage any necessary updates to that information throughout the vendor lifecycle.

You’ll need an audit trail for all of these activities and visibility into where the vendor stands in the onboarding process so you can communicate that with the vendor and internal stakeholders.

All this is to say that there is a lot of work that goes into vendor onboarding. In most cases, we’re already asking too much of vendor management folks. Just ask Huron’s Jens Brown, who recently offered us his take:

For those that don’t have an automated solution and rely solely on the typing fingers of a precious few (or one), there can be a lot at stake.

Three Things Going Wrong With Your Vendor Onboarding Process

#1. People are asking your team to break the process – all of the time

The biggest problem with vendor onboarding is a culture problem. Organizations that aren’t aligned in understanding the importance of this function – or that view the role as a simple clerical position – lack the respect necessary for a failsafe vendor onboarding process.

A short story

Let’s think about it anecdotally. Let’s say Monica is responsible for vendor management at her organization. Monica has worked for this organization for 12 years, documented every single step of the vendor onboarding process she’s established, and is the most diligent, detail-oriented person you’ve ever met.

Here’s the thing: the CFO of the organization, Nicole, has a track record of asking Monica to make exceptions to “speed things along.” So Monica’s well-laid (and documented) vendor onboarding process would do just as well balled up at the bottom of a garbage can.

Why? Because one day, Monica’s going to get an email (or a call or a text) from what appears to be her CFO, but it will actually be a fraudster. The fraudster will ask Monica to quickly pay the attached invoice, and Nicole will follow up with the required paperwork to onboard the vendor the next day.

Because Monica is used to Nicole frequently asking to break the process, she’ll likely fall for the scam.

The problem is that this time, it’s not really Nicole. sending that email. It’s a bad actor asking for the bank info to be updated to his personal bank account information so he can defraud the company of .

Once Monica has realized what has happened (usually when the real vendor starts asking questions about where its payment is), it’s too late.

Then the headlines start rolling in…

“XYZ Org loses $1.3 million to social engineering fraud”

“Local organization scammed by CEO fraud”

You know the ones we’re talking about. We’ve all seen them before:

We’re all like Monica. In fact, if you sit at the vendor desk and even believe that it’s possible that your controller, VP of Finance or CFO would ask you to break the process “just this once,” you have a culture problem that could cost you millions.

Listen to Huron consultant Snow Rutkowske’s experience with this below:

It’s a culture that doesn’t respect the process that is there to benefit the entire organization. And it’s a culture that puts everyone at risk.

#2. They want to, but your team doesn’t have the time to follow your process

The next big problem is that of time and resources. The vendor desk struggles with both, which can lead to costly trade-offs that open the door to fraud.

You might have the most well-constructed, thorough, cover-your-bases, documented vendor onboarding plan imaginable. But if no one has time to actually do it, secure processes get sacrificed. It’s the proverbial tree falling in the forest with no one around to hear it.

It’s a problem that impacts every single organization: time versus security. The kicker is that it has nothing to do with the team’s ability to follow directions or be diligent, and it’s not a reflection of bad intentions, either. These people literally do not have the time to follow process.

The speed with which your business requires them to onboard vendors is at odds with onboarding vendors correctly, accurately and securely. When it gets down to the wire, speed usually ends up winning. The urgency with which people need to be able to do business with their vendors ends up pulling them away from following a secure, airtight process.

Processes that have so many steps and are so labor- and time-intensive become undoable and put the organization at risk. People will ask themselves every time “Should I follow the process as it’s documented and grind the business to a halt or can I take some shortcuts to get this done in an acceptable timeframe for my boss?” And guess which way they’re going to go?

For a detailed accounting of how this can backfire, the town of Peterborough, NH is a cautionary tale for the ages– with three frauds in four weeks to the tune of $2.3M in losses. What happened? People did not follow the process.

#3. Because of #1 and #2, it’s getting impossible to insure

The cherry on top of this conundrum sundae is that these problems create holes that make insurance companies really uncomfortable. Obviously, insurers have interests to protect just like you do. So when they see that your culture permits rule-breaking that could potentially lead to fraud, they’ll either deny you coverage or deny your claim.

It’s the same result if you don’t have a process or don’t follow the process that you do have. It’s grounds for insurers to say “We’re not going to cover you if fraud happens because you’re not taking the necessary precautions to prevent it.”

Now you’re both at increased risk for fraud – and uninsurable against it. Ouch.

How to Fix Your Vendor Onboarding Process

#1. Write everything down and document ALL exceptions

The best way to combat the culture problem is to shine a light on it. You probably don’t want to stand on a soap box and make an announcement that Nicole the CFO is the top offender when it comes to breaking the vendor onboarding process.

However, you can create a log book (or use this one here) to keep track of every time someone asks you break the process.

This is a great (and less abrasive) way to keep track of each time you’re asked to make an exception. Now, you have actual data to use as a conversation starter with the higher-ups about the importance of your vendor onboarding process.

It empowers you to present a compelling case to leadership for revamping your organization’s vendor management strategy–to embrace smoother workflows and reduce stress in your daily work.

#2. Make the vendor onboarding process doable

If you’re running into problems with the process not being followed, a good place to start is documenting every step of the process (Need a template? Here you go.).

Detailed documentation can help you start productive conversations and make decisions about your organization’s vendor management strategy. It is also a good way to identify where bottlenecks are happening.

The key is to get input from all team members on what seems to be taking too much time. Then, see where workflows can be improved or sped up with automation.

Better yet, see where technology can take on the bulk of the heavy lifting. It can improve the vendor onboarding process and also make people’s lives a little easier. One of our anonymous vendor desk podcast guests touches on this below:

#3. People and paper trails make you more insurable

It’s bad enough to be kept up at night by the thought that you could possibly be duped and cost the organization thousands or millions of dollars. Knowing that you’d be SOL in terms of insurance coverage on top of it will do nothing to help you get a good night’s rest.

By following steps one and two above, you can put together a narrative that demonstrates to insurance providers that a) you have the right systems, tools and guardrails in place to prevent fraud (aka you’ve done your due diligence), and b) your team is committed to abiding by those systems and tools to make sure nothing slips through the cracks.

Given the social engineering schemes in play in 2024, it’s getting harder to find coverage for this type of fraud. Yet, it’s one of the most sought-after types of coverage organizations are looking for.

Don’t leave anything to chance. Document your process. Get buy-in from all team members and leadership to follow that process. Refine, iterate, wash, rinse, repeat.

Get Ready For Vendor Management Appreciation 2024

If you liked learning three things you didn’t know about vendor onboarding platforms, stick around. We’ll be covering much more than that on the journey to Vendor Management Appreciation Day (VMAD) 2024.

It’s time for everyone to unite in honor of one of the most critical, under-recognized roles across industries: vendor management.

VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

We’ve released gifts each month to help you supercharge your vendor management efforts. We’re also planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

Learn more here, and grab some free vendor management goodies.