Financial Operations Network | The “Insignificance” of Vendor Onboarding
Onboarding is not a “mere” administrative activity. It involves crucial information … including vendor validation, payment information capture, sanctions clearance and tax classification for reporting and withholding status.
Vendor Onboarding. IRS compliance, Vendor Tax ID number, TIN, W-9, W-8, OFAC Compliance
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The “Insignificance” of Vendor Onboarding

The “Insignificance” of Vendor Onboarding

New vendor onboarding and vendor record upkeep are insignificant administrative tasks, right?

Tell that to the CPO or department head when you hold up a vendor payment because you don’t have a tax ID. Or to your finance VP or CFO when you just found out you paid money to a phony vendor. Tell it to your CEO when the Treasury Department agents in black suits and no sense of humor show up at the office.

Administrative? Sure. Insignificant? Hardly.

When it comes to vendor onboarding, the devil is in the details. Onboarding is not a “mere” administrative activity. It involves crucial information and critical functions, including vendor validation, payment information capture, sanctions clearance verification and tax classification for reporting and withholding status.

Vendor validation, information capture and verification of sanctions clearance are each vital in the process of onboarding a new vendor. If you are charged with responsibility of the vendor file and don’t know what these mean, you need to find out! But here we are going to focus on tax classification. Why is it important and what does it entail?

Why It Matters

U.S. organizations are required by law to report to federal and state governments certain payments they make. It’s part of the governments’ efforts to close the “tax gap” – that gap between tax owed and tax received. A major cause of the tax gap is taxpayers underreporting income. Companies report payments made to employees on form W-2. But they must also report certain payments made to non-employees on form 1099-MISC.

The consequence of failing to meet your organization’s responsibilities to report, and in some cases withhold a percentage of payments, is that the IRS will fine you. There was a time when the fines were fairly inconsequential. But over the past several years that has changed, as the IRS has significantly increased the fines.

It matters too in addressing the issue up front in a relationship with a vendor, rather than have to spend valuable time later tracking down vendors to correct the record.

How do you know which payments have to be reported, and to which vendors? To answer those questions, you need tax classification information from your U.S. and non-U.S. vendors. And you need this information before it’s time to pay them. Once you’ve paid them, their incentive to provide you the information is considerably reduced.

Without the information, the IRS says you must backup withhold 39.6 percent from the payment to a nonexempt payee that has not furnished a taxpayer identification number. And without the W-9, you might not know whether the vendor could be exempt. If you fail to meet the reporting and backup withholding requirements, it’s going to cost your company.

What It Entails

Backup withholding does not apply to all payments, nor are all payments reportable. Many vendors are exempt from reporting — for example, corporations. Certain payment types are exempt given the right kind of documentation — for example, expense reimbursements made under an accountable plan to a service contractor. AP staffers have to learn the rules and know what to look for. It gets especially complicated with foreign vendors.

You have to know and document in the master file the vendor’s country status and tax classification, which depends on organization type. And the rules are different for non-U.S. vendors.

IRS Forms W-9 and W-8 are designed to provide tax classification information, so the starting point is to obtain the appropriate form or acceptable substitute form from the vendor.

Sometimes the vendor is unclear about which form to provide you (especially foreign vendors). Sometimes they provide incorrect information regarding their tax classification – the little bit of good news there is that if you have the documentation on file, and the IRS determines you have the wrong classification and therefore did not report or withhold correctly, you are not penalized for acting on the documented information the vendor provided. But you are responsible to go back and sort it out with the vendor.

Correct reporting entails knowing which payment types are reportable, and to which types (tax classifications) of vendors. It’s important to understand the rules. There are tools that also can help you and your vendors to determine which form they should use and that make it easy to submit. For example, VendorInfo’s Vendor Compliance module guides your vendors through a series of questions to lead them to the correct form, which they can then complete and submit to you, all online. (The same module then runs a TIN match against the IRS database, and also validates the vendor as well as checks it against the government sanction lists.)

When it comes to payment reporting and backup withholding requirements, get it right, or get B-notices and IRS penalties!

To see how VendorInfo’s onboarding solutions can benefit your operations and your company click here to request more information or call (678) 335-5735.



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Let us show you how InvoiceInfo's vendor self-service portal can help your organization eliminate invoice inquiry emails and calls while enhancing service to your accounts payable customers.

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InvoiceInfo and VendorInfo are standalone applications that can be up and running in as little as two weeks, with little or no IT resources required.

The faster your online portal is up and running, the sooner you will start reaping the benefits. InvoiceInfo and VendorInfo are dedicated solely to helping AP and procurement departments slash the time and expense of servicing vendors, while improving customer service for their suppliers.

InvoiceInfo and VendorInfo are simple solutions with big results. They are easy to implement and easy to use. Here’s how one customer described the process: “You give vendors a URL, provide instructions about what they need to know and tell them to go use it.” It really is that easy.

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Improve Productivity with a Self-Service Solution

For most organizations, deploying a technology solution is a significant investment, and like most investments, the decision point ultimately comes down to the expected return on that investment.

According to a recent benchmark study by The Accounts Payable Network, 60% of AP customer service calls are from vendors while 40% are from internal customers. Vendor issues actually make up even more of the AP call volume than the 60% identified. Many times when a vendor has an issue, the vendor contacts their buyer or purchasing representative, who in turn contacts AP. Even though the call comes from an internal customer, the question originated with the vendor.

Vendor calls affect productivity in your organization exponentially. When vendors call the requisitioner, they are affecting that person’s productivity. Your internal customer’s productivity shrinks when fielding the vendor’s call and again when making the follow up call to AP and getting back to the vendor. Finally, AP’s productivity suffers as a result of the internal customer’s call, the payment status research and the follow-up communication.

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Easy and Economical Solution to Serve Vendors Around the World

InvoiceInfo can help you provide best-in-class customer service to your vendors around the world at a fraction of the cost.

Many organizations today have offices and operations throughout the world and are dealing with many time zones, different languages, and in some cases multiple ERP systems. InvoiceInfo currently supports different languages and can easily work with multiple ERP systems in different locations.

The key to good customer service is to provide the information that the customer wants when they want it. Whether your customer is a vendor waiting for a payment or a colleague that needs information on payment status, they want their information right away. If your organization has vendors and offices in other countries, they can be challenging and expensive to serve. But, with InvoiceInfo, your international vendors and internal customers can access the information they need when they need it.

With InvoiceInfo, you won’t have to staff your customer service team with 24-hour coverage in multiple languages to provide high-quality customer service around the world.

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Enhance AP’s Role As a Strategic Partner

Learn how InvoiceInfo can help AP do more with less while continuously improving productivity and bottom-line results.

Many automation technologies such as scanning, workflow, e-invoicing, ACH, and electronic invoicing require significant investments of money, time and talent, making it difficult to get buy-in from upper management. Not InvoiceInfo!

If your goal for your AP department is to reduce costs quickly, call or email us today to learn more about how InvoiceInfo can help you achieve this goal through a quick, inexpensive and easy implementation of a vendor self-service portal.

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Enhance Vendor Relationships

InvoiceInfo helps suppliers’ AR departments with simple and convenient access to invoice payment status online at a cost savings for all involved.

It may seem that the organization paying the vendor should hold all the cards in the relationship. But sometimes the opposite is true. Past-due payments and customer service perceptions can harm supplier relationships and disrupt the supply chain.

Your vendors and vendor relationship managers are living in a dynamic, fast-paced environment, so when invoice information is required, it is needed quickly and expected to be of high quality. With InvoiceInfo, your suppliers get answers to invoice inquiries real time, 24/7 with no need to leave messages and wait for responses. Studies show that confidence in data increases when suppliers access invoice and payment information themselves.

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Give Procurement and Buyers the Tool They
Need to Respond to Vendors Quickly

Not only can InvoiceInfo be used by suppliers to learn the status of invoice payments, it can also be used internally within your organization.

In addition to reducing calls from vendors regarding invoice status, you can also reduce internal emails and calls from co-workers wanting to learn the status of invoice payment, and save time and effort and boost efficiency and productivity across the organization. Studies show that 40% of AP customer service calls are from internal customers. Many of these are from requisitioners who have received calls or emails from the supplier checking on payment status. These calls are often more expensive for the company because the internal staff member has taken the call or received an email from the supplier, contacted AP for the payment status and had to return the call or email the supplier.

By providing the vendor with a convenient and credible online option to get the answers it needs regarding payment status, you can eliminate multiple calls/emails between the vendor and the requisitioner saving time and money.

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Eliminate Difficult Vendor Calls and See
Productivity and Staff Morale Soar

Reduce invoice payment inquiries and “promote” your vendor service team to more satisfying and profit-producing tasks.

By sharply reducing inbound calls and emails regarding receipt and payment status that your AP staff must handle individually, your staff can focus their efforts on more productive, cost-saving activities, learn new tasks, feel more confident and boost their careers.

According to a recent American Express survey on customer service, more than one-third of consumers have lost their temper with a customer service professional in the past year. Of those who lost their temper, three in ten “hung up the phone.” Your staff will no longer have to deal with difficult collectors who can be upsetting and disruptive. Your staff will feel that their time and talents are being put to better use and will feel better about themselves, their jobs and their organization. Reducing these calls can be a real productivity and morale booster for your AP department!

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Simplify and Streamline Vendor Onboarding

According to Price Waterhouse Coopers, the average organization spends about $20 in labor to file each paper document, approximately $120 in labor searching for each misfiled document and $220 in re-creation of a document.

Wouldn’t it be great to have all your W-9’s, W-8’s and other registration documents completed online and instantly filed online for easy access when needed? With Vendor Self-Service Onboarding Module, VendorInfo, you can onboard your new vendors in one convenient location and eliminate paperwork and hassles.

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Verify the Accuracy of Vendor Information and Stay in Compliance with IRS and Treasury Department Regulations

Government regulators are increasing the complexity of regulations and penalties associated with vendor-related non-compliance.

Penalties for incorrect 1099’s have more than doubled in recent years. Over the last several years, OFAC has levied more than $1 billion in fines against American companies or subsidiaries that did business with restricted businesses, organizations and individuals on its SDN list. In addition to fining these companies, the Treasury Department posts the names of infringing organizations along with fines paid.

VendorInfo Onboarding Module verifies the accuracy of vendor information and helps protect your organization by avoiding embarrassing penalties and fines.

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