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6 Tips on How to Master Your Master Vendor Files

BY: Carrie Louise Hovell, CPP | 10/28/21

Every company has a set of master vendor files, and there are correct and incorrect ways to properly set up and maintain these important files.

When master vendor files aren’t kept in order or maintained properly, mistakes can happen. Some of these mistakes can have a financial impact on the company. Experienced payroll and AP professionals have gained the knowledge necessary to maintain these files and ensure that many of these mistakes are avoided. Below are six tips on setting up master vendor files that may be helpful to you and your company:

1. Establish and Control Access

Defining the duties between AP and the payroll or accounting supervisor who accesses the data within the documents will help establish control of the master vendor file from the time of purchase to the time of payment. Controlling the entry privilege to set up a vendor in your accounting system can be harder in a smaller company, but it is not impossible. For example, an AP specialist can be responsible for adding a new vendor to an accounting system, while the supervisor can be responsible for reviewing the entry against the submitted Form W-9 and ACH information provided by the vendor. If the supervisor can’t access this data, the vendor can be put on hold until payroll verifies the vendor’s information.

2. Specify Required Documentation for Vendor Payments

Payroll or accounting managers should establish and maintain consistency when entering information for vendor payments, and ensure they obtain the specific paperwork needed before the first payment is processed. This ensures that the vendor’s identity and financial information is verified and up to date and eliminates the possibility of a phantom or nonexistent vendor.

Some companies have a process that uses a vendor setup form. This form is usually completed by a different person in the accounting and payroll department than the person entering the vendor information into the system. Vendor information can also come from another department, such as the contracts department. Thus, other departments will need to complete the required paperwork for vendor setup, too. The setup form will provide all required fields necessary to complete the setup of the master vendor file.

However, other companies may require a completed and signed Form W-9 for the vendor, which is needed to create the master vendor file. A company’s payroll and accounting department may also require the vendor provide accurate contact information. This is in case there are questions about invoices or to advise the vendor when payment has been sent.

Payroll and accounting departments should require a completed Form W-9 from every vendor in their system for payment. Even if you think they are not reportable and won’t require a Form 1099, it is a great way to have a complete file for all vendors. This also provides protection during an audit and provides answers to why a Form 1099 was or wasn’t created. Do not process the first payment for the vendor without the W-9 form because it is harder to obtain once payment has already been processed.

3. Update Vendor Information

Maintaining master vendor files properly is helpful when changes must be made. Companies may move or decide it is time to receive ACH payments, rather than wait for a check in the mail. A company may merge with another and need to create a new vendor file. If you have a vendor setup form, you could complete the document and forward this to the accounting supervisor to approve the changes. If a company closes or is part of a merger and requires a new setup, make a note in the vendor file when this transition occurred. It will assist you as time passes and when you need to go back to research an invoice that wasn’t paid or a check that wasn’t cashed. Direct deposit or ACH information may also need to be updated. Payroll and accounting departments may receive emails asking to update direct deposit information. Ensure the vendor verifies their updated ACH information via a phone call. If you call, follow-up with an email so you have a paper backup for your vendor file.

4. Avoid Duplicate Payments With Standardize Data Entry

It is essential to be consistent with how vendor information is entered into the master vendor file. This helps to guard against creating duplicate entries. A company’s name may be entered several different ways, which could cause a duplicate vendor entry. Before entering a new vendor, conduct several searches to determine if the vendor information is already present. If your accounting system has the option to search by the FEIN, duplicates are less likely. By making the vendor’s name the same format for all vendors, it can help you to avoid a duplicate in your system.

For example, if a company goes by ABC Company, LLC. on their Form W-9, you may determine that your system should not have punctuation. Therefore, you would enter it as ABC Company LLC. Another company may feel that exactly matching the Form W-9 is important and enter the name as ABC Company, LLC. in their accounting system. Either format is correct, but being consistent with how you enter a vendor’s name into your accounting system will assist you greatly in avoiding duplicates. Prior to mailing checks or sending an ACH file to the bank, check one last time to see if you have a vendor being paid twice under two different master vendor files. Delete the duplicate payment and work to clean-out the duplicate vendor to zero before making them inactive. You do not want them receiving two Forms 1099 for the same FEIN.

5. Review Vendor Files Continually

Payroll and accounting departments should continually evaluate their master vendor files to determine if a vendor is inactive or active. Set up a consistent schedule that alerts you to review vendor files. It can be monthly, quarterly, or annually. Complete the review at least once a year, but quarterly is highly recommended. While reviewing vendor status, accounting will find there are vendors the company uses once a year, quarter, month, or more frequently. If a vendor is inactive for at least 12 months, accounting should change the status of the vendor to inactive. This will allow you to still search for the vendor if they are used again. By making the vendor inactive, you keep your database active and accurate. You can also prevent entering invoices into the wrong vendor, especially if their company name is similar to another active vendor.

6. Guard Against Phantom Vendors

Phantom vendors, or nonexistent vendors, can be easily uncovered when you continually audit your vendor files. Uncovering a phantom vendor can be done by checking vendor addresses against employee addresses. If an address matches between the two systems, verify if the vendor is legitimate. It is possible that a vendor is a spouse, relative, or roommate of an employee, so it is important to investigate matches and not assume it is automatically fraudulent.

Be sure to take the time necessary to master your company’s master vendor files to keep many mistakes from happening.


Carrie Louise Hovell, CPP, is the Payroll Benefits Manager for Infinitive Inc. She is a volunteer for the APA’s Certification Item Development Task Force, the CHAMPS Committee, Hotline Referral Service, Nominating and Elections Committee, the Social Networking Committee, and the Small Employers’ Best Practices Subcommittee of the Strategic Payroll Leadership Task Force (SPLTF). She also received the APA’s Meritorious Service Award in 2018 and is the Vice President of the Charles Town West Virginia Chapter (CTWV) and was the past President of the Washington Metropolitan Area Chapter (WMAC).