AP Vendor Master File Clean-up

I would review vendors every six months. Sounds like over-kill, but after the initial clean-up, it should not be a large task. If there are no transactions, inactivate them. When things are left open, with no close oversight, there is a high probability of errors. If there is no issue activating, inactivating should be fine.

The real question that should be looked at is, “Why so many vendors?” When purchasing is fragmented, you are open to pricing inefficiency and you lose the ability to gain some pricing power. You also lose the ability of developing a relationship with a provider that is working on your behalf.

I agree with Regis' point. Having them out there only increases the chance of error so I would regularly clean them out.

I agree with the others - and suggest you may want to issue P-Cards to your employees making these small purchases. This streamlines your vendor file, enhances your cash flow and might even get you a rebate from the bank doing your Pcard program. Many banks offer them. I've looked at Wells Fargo, Bank of America and Commerce Bank. I was no so impressed with BOA but Wells and Commerce both look good.

Because of the fact that a lot of our buying is seasonal, we normally flush them out once a year (For those vendors with no activity for over 12 months). That said, we review mid year and assign "candidates" the one-time vendor status (feature in Dynamics GP) then at year end, we review the list and flush them as part of the year end routine when closing AP.

I agree with the statements about regular cleaning of the vendor master file. It is a recommended fraud preventative measure. As a side note, I worked for a company in the internal audit group and one of our audits found the company had never cleansed their master file and it have over 70,000 vendors many with inaccurate addresses and no FIN. The company had never allowed an audit of AP in their 60 year history. When we cited the issue and talked to management, their response was "so what" show us where that resulted in false payments. Although we attempted to explain the issue of control gap and opportunity, they were a Non-public company and convinced the Board it was not an issue.

As a procurement practitioner I would work in conjunction with finance to cleanse the vendor master file on annual basis. In terms of removing inactive vendors I would recommend their removal in the event there was no activity throughout the financial year period.
The 'tail' as it is commonly referred to by procurement is a costly burden to many enterprises. With ~80% of transactions representing ~20% of vendor spend organisations should be looking at more efficient & effective ways with which to manage their 'one-off' type transactions. For example the Purchasing Card is a very effective tool to achieve 'tail' reduction whilst maintaining compliance to policy and transaction visibility.