You receive a notification letter or email indicating that an existing vendor has either changed their Legal Name or Tax ID or both. First, let’s take a moment to appreciate the notification. Those in Accounts Payable (AP) know that many fire drills are due to only being notified of existing vendor changes when their invoices have not been paid.
Second, use authentication techniques to ensure that the information received is valid and from the vendor. This can be validating that the email domain received is not spoofed and on the vendor record, or by contacting the vendor using the contact information (email or phone) on the vendor record to confirm.
Once you have confirmed the information is real, you need to identify what changes need to be made to the vendor record in the Vendor Master File in each of those scenarios. Let’s first look at what supporting documentation to collect.
Forms to Request
New W-9 or W-8X Form
May also request:
New Banking ACH Form, if paid by direct deposit
State Certificate / Articles of Incorporation
Diversity Certification Updates
Copy of Invoice or Contract, if Remit Address is different than W-9/W-8
Validations to Perform
IRS TIN Match – Verify new Legal Name + Tax ID combination matches
The IRS can take a significant amount of time to update their records. If it is not a match, request the IRS Form 147c from the vendor. This form is issued by the IRS to the vendor with the recognized Legal Name and Tax ID, and can be used as support for the update in the vendor master file.
OFAC/SDN – Vendor and Bank Name are not on exclusion list(s)
Banking Details – Verify new details and/or new account name
Secretary of State – Verify Business Registration
Insurance Carrier – Verify Change of Name (if applicable)
Now that you have validated the documentation, changes can be made in the Vendor Master File based on the scenario.
Changes to Vendor Record in Vendor Master File
Changes to Vendor Legal Name – Update existing vendor record with new Legal Name. Since the Legal Name on the vendor record must match the Legal Name on the invoices when posting, the vendor will need to update the Legal Name on all future invoices. Purchase Orders should update with the new Legal Name automatically.
Changes to Vendor Tax ID – Inactivate existing vendor record and create a new vendor record with the new Tax ID. Why? Tax reporting is linked to the Tax ID, and any historical activity linked to the Tax ID on the existing vendor record should remain intact for reporting and auditing purposes. If there are any open Purchase Orders, work with the vendor and Procurement team to determine if they will need to be closed and reopened using the new vendor record. Future Purchase Orders and invoices will need to use the new Vendor ID.
Changes to Vendor Legal Name and Tax ID – Inactivate existing vendor record and create a new vendor record with the new Legal Name and Tax ID. This is really a new company. The vendor will need to update all future invoices with the new Legal Name and new Vendor ID. If there are any open Purchase Orders, work with the vendor and Procurement team to determine if they will need to be closed and reopened using the new vendor record. Future Purchase Orders and invoices will need to use the new Vendor ID.
Don’t forget to send a confirmation to the vendor after the change is made in the vendor file. For more detail see blog post Send a Notification to Vendors After Updates in the Vendor Master File.
Want a handy Cheat Sheet that includes the links to the validation resources? Sign up for my mailing list below, download the Vendor Validation Reference List and share with your entire team! Today is the last day to sign up and be entered in the February 1, 2019 drawing to win a Putting the AP in hAPpy coffee mug.
Protect the Vendor Master File from Fraud. Keep it Clean.
Vendor Setup & Maintenance Additional Resources:
Need a Resource for Vendor Setup & Maintenance? eGuide: 3 Step Vendor Setup and Maintenance Process eGuide to protect the vendor master file from fraud and keep it clean. www.debrarrichardson.com/training
Need help cleaning the Vendor Master File? Visit www.debrarrichardson.com/consulting
Need Vendor Master File training? Visit www.debrarrichardson.com/training
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