Outsourcing is a fantastic way to improve efficiency, strengthen productivity, and decrease overhead costs. That’s simply true. But you need to realize that outsourcing is only beneficial if it’s done right. When you hire vendors to take over specific responsibilities for your business, the purpose is to offload responsibilities and more efficiently handle those aspects of your business.
When you’re working with vendors in consumer finance or enterprise receivables management, the concerns are even higher. Third-party vendor management is critical to ensure that debt collection compliance standards are met. Mistakes happen, in every industry. You can’t afford to pay for your vendors’ mistakes.
What Is Vendor Management?
Your business likely works with several vendors. Vendors are businesses and independent contractors that manage some job or responsibility for your business. They provide goods or services that your business needs to function. Vendor management is the process of working with these vendors.
Good vendor management includes the entire lifecycle of hiring, onboarding, and maintaining relationships with your vendors. Your process should include an organized way to research and compare quality vendors for specific areas. Hiring and working with vendors will include responsibilities like obtaining quotes and negotiating contracts. You need an efficient way to compare different vendors to choose the ones that work best for your business and processes.
The vendor management process doesn’t stop once you’ve chosen a vendor. You need to maintain a protocol to oversee how your vendors perform. This might include licensing requirements, their turnaround times, customer service, add-on services, and other aspects that are integral to the specific function they perform for your business. For vendors in enterprise receivables management and other financial industries, part of your process needs to address compliance with consumer protection laws and regulations.
Cost Savings vs Cost Avoidance
The whole point of hiring vendors is cost savings and skill acquisition. You’re trying to avoid hiring an extensive internal team and making sure you have the right skill set in place to complete specialized tasks expediently. The best vendors are specialists in their set area. They can complete tasks in their industry more efficiently, in less time, and for a lower cost. That’s the holy grail of vendor management.
However, if you don’t approach your vendor management adequately, you’ll find that your vendor choices can cost you more in risks and monetary losses. We’ve talked before about the KPIs you need to monitor in your vendor management process. It’s important that you continually monitor your vendor’s performance to assess the benefits vs the cost.
There are big mistakes that can cost you exorbitantly if you’re not paying attention or performing due diligence in your sourcing and vendor management.
Make Certain ONLY AP Employees Deal with Financial Vendors
This is a common practice. Companies often have employees wearing multiple hats. But this is a costly mistake. The person in charge of dealing with your vendor payment information needs to be fully knowledgeable about collecting the proper credentials and vetting the vendors.
When companies cross train they need to make sure the trainee, who may head up a specific function, specifically accounting, is fully trained. An employee who is not properly trained essentially acts as an intermediary between experts in the company and the vendor.
Your company should have a specific person in charge of credentialing and vetting vendors. If you task an employee without that expertise, it can cost you in several ways. It increases the chances of fraud, because the employee will not be familiar with things that they need to know. Employees who do not fully understand this area of business are not as efficient at onboarding vendors. You can’t expect them to be as efficient as someone with the background and experience to understand nuances of the task.
Another thing that’s concerning for these companies is the extra burden on employee time. If you have someone in your administrative staff collecting vendor payment information, they need to take time away from their regular job duties. This puts the employee in a position where it’s difficult to succeed and opens your company up to errors.
Avoid Data Entry Mistakes
Manual mistakes are common.. Things like typos, inverted numbers, or even including outdated contact information can lead to costly errors. If you are working with documents that are not digitized, you might run the risk of illegible writing or other issues that make the information hard to read.
Your staff shouldn’t be putting data into the system manually. This is a common practice, but it leads to a lot of errors that are avoidable. Some issues you might face from having employees change or type in information includes returned checks due to incorrect contact information or account number information. Notice B fines for incorrect 1099s are also a possibility. And you might have charges for returned ACH due to the data entry mistakes.
Manual entry is time consuming. When there are errors, your staff will need to spend even more time finding where the error is, fixing it, and reissuing payment when applicable.
Confirm Vendor Information in Your Enterprise Resource Planning (ERP) Software
Unconfirmed vendor information is a nightmare. Going back to what we pointed out about making sure your staff member who handles vendors is an AP professional, this person would confirm that all your vendor information in the ERP is accurate. If you don’t have an AP professional, you need to assess the accuracy of your data.
Whether you’re making changes to the ERP or checking the information that’s already there, you need to verify that all the information is legitimate and accurate. Using a third-party that specializes in confirming credentials is a more efficient method of dealing with the validity of your ERP information. This alleviates stress from your staff and gives you a verifiable way to make sure that your data isn’t corrupt or incorrect.
Guard Against Hacking and Social Engineering
Hacking and cybersecurity are a huge risk. And you might think that this is something that you can leave to your IT team. Think again. Social engineering is the largest risk you face. According to this recent Varonis article, 95% of cybersecurity breaches are the result of human error.
What does that mean for you? Payment fraud. Hackers use a technique called social engineering. They basically contact the company and trick an employee into doing something that would give them access to funds or data. This might include clicking on a malicious link or downloading a virus. It often includes the transfer of funds when a financial department or company is targeted.
The question is, who is tasked with verifying this information? What’s the process for changing information in your ERP? Because if you have a staff member manually inputting new information into your ERP, you are at risk. Social engineering isn’t as easy to spot as it once was. Often these spoofs are exceptionally clever and look legitimate. You need to verify all information before any data is changed.
What happens if you fall prey to this type of scam? You run the risk of paying the hackers instead of the vendor when information is changed in your ERP erroneously. There can also be more significant repercussions. Damage to your reputation and possible litigation to reimburse the stolen money are possibilities.
Do Not Store Bank Account Information in Your ERP
There are a few reasons that storing bank account information in your ERP is a bad idea. We discussed the obvious above, you’re at risk of being hacked and having that information compromised. There’s a secondary risk to this, as well. It’s a large temptation for employees. While we all want to think employees would not steal, it does happen.
If an inside actor changed bank account details in your ERP, what would the consequences be? And don’t forget, hackers don’t always target companies from the outside. They often target individual people to gain access. This might be through hitting an employee with a virus that gains them access. But it can also be through blackmail. The odds are good that most of your employees are susceptible to blackmail of some form or another. Would they risk their reputation for yours?
So what’s the solution? The best solution is a third-party so that the bank account data is encrypted and not available to your employees or any possible outside threat. If you do have bank accounts compromised in this way, you risk monetary damages because your company would be liable for the lost funds. You would also be susceptible to bad publicity and damage to your company’s reputation.
Make Sure Your Vendor Management System Has Up to Date 1099 Information
What happens if your 1099 information is inaccurate? You could receive a B notice violation from the IRS, which could mean costly fines and a lot of extra work to sort out. For example, the IRS issues a B notice violation when a TIN is incorrect or you don’t provide the payer with the TIN number in the right manner. Your company could be on the receiving end of these notices if you’re not careful with your documentation.
Verify Your Vendors Are Not on Sanctions Lists
This sounds like a no-brainer, but it’s more complicated than it appears. Your company checks the sanctions lists before working with vendors. That’s routine everywhere. But that’s not the only part of the process and a lot of companies don’t do the follow up to make sure their vendors stay in good standing.
Your staff needs to monitor these lists continually. When we say continuously, it should really be verified before completing every invoice, not just the first one. Most companies don’t do this because the time commitment is extensive. That’s why a third-party solution that automates this process and takes it out of your hands is a better idea. You don’t run the risk of making a mistake or skipping this all important step.
What happens if you do pay a vendor who has been added to a no sanctions list? It can mean losing government funding and large fines.
Make Sure You’re Tracking Vendor Diversity Status
Equality in the workplace has, rightfully, become a central issue. It’s no longer something that you can overlook. Today, companies need to show proof that they hire a diverse workforce, and that includes vendors.
There are certifications to verify that your company is working with minority owned businesses. These include veteran owned businesses, women owned businesses, and businesses owned by groups that are traditionally marginalized and at a disadvantage. This is a large ask for your staff members. They need to track the status of the vendors and make certain that vendor companies have no history of any type of employment discrimination.
Let’s forget what missing this step will cost you for a minute and look at how it benefits your business. Hiring and tracking a diverse vendor list means improved reputation, positive PR, and more efficient time management because your team won’t have to retroactively build lists to prove diversity. You’ll also widen your scope of vendors, which means that you’ll be able to transparently choose a company with the best pricing.
You Need a Consistent Vendor Onboarding Process
We see this so often. Your company gets an invoice, and the vendor doesn’t exist in your ERP. With a larger company, it can be tremendously difficult to verify the vendor after the fact. You need to track down who agreed to the terms of the contract with the vendor, and then retroactively onboard them into your system.
Your staff will need to complete all the steps necessary to work with that vendor after the fact. And it can be difficult to verify. We’ve already talked about issues in checking that vendors are not on the sanctioned list. In this scenario, that step was certainly missed.
Therefore, you need a central process for onboarding. You need a clear way to track vendors, determine how the decision was made to work with vendors, and collect all the information necessary for accurate records. You can’t rely on a manual process for this because it leaves you open to errors. Using a third-party vendor and an automated process means that you’ll have robust auditing for every vendor in your system. You can refer to your data to verify authorization and certification.
Bringing transparency to your onboarding process protects you from issues like invoice fraud and the social engineering issues we mentioned above. It also streamlines the process for your staff and verifies all the vendors working with your company.
Why Does Vendor Management Matter?
As a recap, there are many ways that vendor management saves you money and improves the workflow for your internal staff. It helps you mitigate risks and create a better, more efficient process for your internal staff and your outside vendors.
Here are a few of the benefits to building a winning vendor management process.
Create Winning Relationships
Your vendor relationships are important. These suppliers act as an extended part of your team, so building a productive relationship with the business and their personnel means a more productive experience. And a more pleasant one.
Creating a solid vendor management protocol makes things easier for your internal staff, but it also makes your company much easier for vendors to work with. Just like employees, your vendors are looking for productive and positive opportunities.
This is the most important reason to create a solid vendor management process. You need to mitigate risks to your company. Whether they come from social engineering or simply outsourcing to the wrong vendor.
Decrease Your Spending
Your process will help you research vendors in an organized way. Because you have more transparency in the process, you can more effectively choose the right vendor at the best price. It also decreases the amount of time your staff needs to spend on tasks, which means a savings in work hours and a boost in productivity.
Improve the Onboarding Process
The process to onboard vendors can be complex. With a great vendor management solution will make onboarding transparent and simple.
Improves Staff Performance and Efficiency
Many of these tasks are difficult and cumbersome for internal staff. They might be working with information outside of their usual responsibilities. Using a vendor management solution means that you’ll experience fewer errors, and your employees can concentrate on the tasks that are a central part of their skill set.
Build a Better Brand
Your brand is important to you. It’s how customers view your company and it’s also how your vendors and employees feel about you. Vendor management improves your brand image all the way around. Employees can offload difficult tasks to concentrate on the areas of their position where they can find the best success. Vendors have a more efficient process, making working with your company far more satisfying. Customers don’t see the vendor process, but they do reap the benefits. And your reputation is secure from some of the things that can go wrong with a poor vendor management process.
Contact NeuAnalytics to Discuss Your Vendor Management Needs
NeuAnalytics’ Vendor Management portal gives you transparent insights. With our portal, you have the ability to capture a quick overview and in-depth information to effectively manage and monitor your risks. You can track vendor locations so that you can easily identify risk zones, even when your vendor uses satellite offices. We minimize your risk by monitoring the closed and current action plans, work items, and questionnaires. Our portal increases your efficiency because you’re provided a centralized hub to access all the documentation you need, including certificates of insurance, licenses, and bonds.
At NeuAnalytics, we provide solutions for large lenders and creditors across the financial services, automotive, energy, and retail sectors. Our services assist lenders and creditors in managing their default receivables. We also work with our clients to manage third-party vendors in order to maintain compliance and manage their ongoing relationships in a productive way.
NeuAnalytics is the only vendor that provides solutions across the entire consumer debt lifecycle. We believe in treating receivables management, compliance, fraud, disputes, and complaints as equally high in priority. We believe these things can only be managed individually if they are managed well collectively.
Are You Interested in Seeing How NeuAnalytics Can Improve Your Process?
Schedule a demo today and see how NeuAnalytics vendor management portal was designed to perfectly improve your process.