Ultimate guide to vendor management system
Vendor management systems are cloud-based software authentically designed to assist businesses in taking care of the end-to-end vendor management processes from the commencing contract to the final business partnership. Selecting the right vendor management system can help you organize and simplify the process. It is an effective system that is known for increasing productivity, managing labor costs, improving vendor performance, speeding up the process of vendor onboarding, reducing security risks, and untangling many other laborious tasks.
What is vendor management?
Vendor management is an interwoven, multi-step process used to organize all the aspects of initiating and preserving relationships with vendors. Vendors are facilitators of goods and services which a company requires for its functioning. The buyer or purchasing company (your business) will be required to maintain documents, contracts, and other business partnership information. This process also includes exploring and scrutinizing appropriate vendors, examining the quality of work, supervising and maintaining performance and standards, and establishing safe payment methods.
Stages of vendor relationship management
Looking from the buyer or purchasing company’s perspective, there are some central stages of vendor management
Vendor selection
Encompasses the use of a compartmentalized and segregated risk profile. Division can be based on location, category, business unit, etc.
Risk assessment
This involves undertaking risk analysis based on your vendor engagement.
Contract negotiation
Determining the term, conditions, and KPIs of the relationship
Onboarding
Going forward with the working process, assessments, and audit status.
Performance analysis
Employing a systematic approach and data-based incident model.
Why is vendor management important?
Vendors for any company are an essential element for the advancement and success of your business. They ensure the growth and improvement of the revenue and profit levels of your company. Despite all this, you may often fail to comprehend the significance and gravity of constructively managing your vendor relationship. Vendor Management, in general, is a lesser-known and scarcely understood business strategy, and this lack of complete knowledge can be an enormous setback for your company.
In today’s scenario, obtaining goods and services is much more than just acquisition; it has become an integral segment of the overall business strategy of any business. Keeping the mind the goal of acquiring the optimum value for your money, a strategic and incremental perspective needs to be adopted for vendor management.
Diminish risks
Vendor relationship management can reduce the risks associated with the vendor's performance, costs, and operations. Any unforeseen compliance and visibility issues can also be deciphered easily by verifying the supplier’s information and specifics.
Reduce costs
All the invisible costs can be effortlessly controlled with the increased visibility that comes with prudential vendor management. Moreover, with the enhanced efficiency of vendor management processes, you create a stronger vendor relationship which in turn gives you the space to negotiate better.
Augment performance
After activating your supplier in the vendor management system, you can track the performance and quality of work of your vendor in terms of your contract. Along with this, all the data collected from the performance tracking can indicate to you any problems or challenges which may appear in the future, through which you get a headstart to make the necessary improvements.
Improve administration
Administrative competencies improve significantly with a proper vendor management system. Maintaining all the vendor information in a single place can colossally multiply your company’s administrative productivity. Vendor Management can protect you from loss of contracts, reduce labor costs and errors and eliminate duplication of data. An appropriate and fighting vendor management would surely impress your vendors.
Fabricate strong vendor relationships
Discovering good vendors is a sweating job. Once you find excellent vendors and initiate a relationship with them, make sure to do everything in your power to keep the engagement solid and build loyalty. A potent vendor management system can assist you in achieving this, which will be an immense benefit for your business because you would have great vendors in your supply chain.
Preserve your brand
A brand name and reputation hold a good deal of value in the marketplace. You under no circumstance want to destroy or strain your company’s brand name by connecting with unethical and unprofessional vendors. A vendor management system empowers you with all the valuable information such as market reputation and standards in regards to your vendor, which diminishes the risk of serious damage to brand name and reputation.
Boost onboarding speed
The whole vendor onboarding process seriously requires a lot of time and money investment. However, with the help of a vendor management system, this process becomes easy as pie. This is because all the essential data of the vendor like back details, capacity details, performance analysis can be procured easily, and once you input it into the system, the process is automated. The faster you onboard vendors, the quicker you will be able to start working with them.
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Essential features to consider in a vendor management system
A vendor management system (VMS) is a software system designed to help companies handle their vendor relationships, from initial contact through establishing a business relationship and closing a deal. Using the right vendor management system helps you optimize your supplier relationship, which is necessary to the efficiency of any procurement team.
Vendor onboarding
Using the system should be easy and fast so that you can access vendor catalogs, sift through the information, see vendor information in multiple languages, and easily register vendors.
Vendor payouts
The system must provide a smooth functioning interface for payments, allowing all payments to be made through a single entity, standardizing processes, streamlining and optimizing procedures, and lowering costs.
Simple and smooth invoice processing
For vendor management, the billing process is an essential part of sustaining the smooth flow of an operation. Vendor payments can be made with better efficiency and accuracy through simple invoice management. The vendor management system ensures a streamlined billing process as well as improved collection procedures.
Creation of a database for all vendor-related information and categorization of vendors
A database of all relevant vendors and vendor-related information should be built after the business goals have been determined. A vendor management system makes it easily accessible and efficient for the business units to match their needs with the most suitable vendors, as well as the categorization of vendors based on their type, making cross-vendor comparisons more straightforward.
Vendor screening
Providing supplier data, such as business reports, financial information, and credit risk information by retrieving and verifying it through the system is also an integral part of vendor management systems.
Automated invoice processing
With the help of vendor invoice management, the processing time and invoice processing errors are reduced significantly, along with an increase in employee productivity.
Multi-level approvals for vendor payments
Accounts payable automation system create a pathway to design a chain of custom approval making it more efficient than the traditional approval methods, which are time-consuming and often confusing for the employees to follow the chain of command.
B2B payments
In addition to its payments offerings, systems also provide payment solutions for various vendor-associated businesses and their underlying clients. Businesses can receive and process local and cross-border B2B payments efficiently and more economically with vendor management systems.
Vendor management system checklist
If you want to choose a vendor management system, make sure you are affirmative about each of the following questions:
Can it be integrated with accounting software or ERP systems easily?
Is it capable of controlling all the aspects of vendor management?
How does the system handle purchase orders and purchase requisitions?
Make sure the price of the vendor management system is affordable
Make sure the price of the vendor management system is affordable
What is the user-friendliness of the system, and will the employees embrace it?
Does it support invoicing?
What are the scaling possibilities?
How well does it integrate with other procurement tools?
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Challenges of managing vendor payments
Compliance
It is imperative to set standards before dealing with vendors to save time and money. You may not always be satisfied with a vendor's performance. It is very important to select the right vendor from a range of vendors who meet your company's standards and requirements while also providing excellent service.
In the meantime, standardization poses some challenges due to varying payment terms and dates, making it a challenge to manage contracts.
Implementing risk assessment of vendor management can increase cost savings by establishing accountability with your vendors.
Data storage
It is important to have a vendor data storage solution in place as your organization grows. Considering that you may be dealing with multiple vendors for multiple projects at the same time without a vendor management system, storing and retrieving data might prove to be challenging. In the absence of a repository that allows vendors to be managed centrally, it is difficult to access, store, and collaborate on numerous vendors at the same time.
In addition to distinctness, integrated data makes efficient management very easy. It doesn't matter if you're auditing compliance, optimizing resource allocation, or improving enterprise risk management.
Data security
For any business, data is the most valuable resource. Having a strong cybersecurity strategy in the vendor management system provides a differentiated level of protection for a company's information assets, providing the most important data with the best protection possible. Otherwise, sensitive information like payment details can be used for wrong purposes by hackers or unauthorized users.
Payment terms
In the absence of standardizing your relationship management with vendors, you may find yourself working with suppliers who do not match your business needs or putting yourself at risk for cyber-attacks. The difficulty of negotiating the terms and making sure payments are always made on time is the biggest challenge, particularly when you are dealing with several vendors at the same time.
Vendor management best practices
Vendor management can be viewed as a burden or neglected when running a business. However, this load can be reduced by utilizing this service as you not only gain visibility into your company's major operational expenses but also streamline your monthly expenses.
It is crucial to track vendor spending once you have formed a relationship with a vendor and have started engaging the vendor's services.
A few things need to be kept in mind, such as the amount spent on each vendor individually and collectively, the products or services you receive from the vendor, the payment methods and account information, and how often payments are made - weekly, monthly, annually.
It is important that all the data can be accessed both for quick analysis and for a detailed investigation, categorizing every procurement point into sets that can be analyzed for trends and variables.
With smart virtual cards, enjoy the benefits of spend management and vendor management. The vendor management feature allows you to set up multiple cards tied to different vendors.
Assign one-time payment cards after which the card expires or recurring payment cards, so you never miss a monthly payment.
Control access to a particular card and breakdown all spending by card, employee, and vendor in real-time. You can view contract details at a glance by keeping track of vendor contracts.
Ensure to make informed decisions during the strategic sourcing and procurement processes.
It is possible to create a consolidated view of all spent for your entire company using a vendor management system. Using the platform, you can collect disparate data from disparate systems and upload it to a central database and also determine if certain categories of spending need supplier consolidation.
Keeping a close eye on your spend data enables you to identify which aspects of spending are appropriate for negotiation at the time of contract renewal.
How to automate vendor management process?
Certain processes, workflows, and calculations related to vendor management can be automated. You can manage vendor operations more efficiently, more effectively, and make them less error-prone by using automated workflows and processes.
Vendor selection
When selecting vendors, procurers engage with the prospective vendors and inquire about their understanding of the procurer's requirements, as well as their pricing. Procuring organizations can slash initial time spent on establishing working relationships with suppliers and improve vendor management by automating the vendor selection process.
Vendor onboarding
It consists of all the steps taken to ensure a new vendor has access to the procurer's internal systems and processes so they can begin collaborating with them. To properly manage vendor relationships, vendor onboarding must be done for vendors and procurers to interact and cooperate effectively.
Invoice approvals
Before approving invoices for payment, several tasks are needed to verify the payment. It is possible to program an automated vendor management system to review invoices, purchase requests, and receipt orders before settling them.
Select a centralized platform for vendor related information
If you want to manage vendor relationships, you need to have important information about your vendors on hand so you can make imperative decisions or communicate with them. A vendor management system can collect this information from your vendors automatically, so you won't need to do it manually each time, making it less error-prone.
Timely payments
Time-saving advantages of automating vendor management processes can also be seen in settlement of invoices. The vast majority of work involved in managing the customer-vendor relationship is fully automated, resulting in more timely and quick accounts payable resolution, faster payment to the suppliers, and more credibility among your suppliers.
Why choose Volopay's vendor management system?
You just cannot run a successful business without using different technologies. Every business problem has a software as its solution. Volopay’s Vendor Management system is the solution for all your vendor management-related issues. From finding to onboarding to managing, Volopay does it all.
Volopay is a web-based software application that helps you categorize vendors during invoice processing and pay your vendors on time with the Easy Bill Pay feature. Bill Pay or the Money Transfer feature of Volopay permits you to enable money transfers to your vendors or anyone. By using Volopay, you can make both domestic and international payments.
Enjoy smooth and faster vendor payouts
We understand that every company has numerous payments to make every day. Volopay is your one-stop-shop for ensuring smooth and faster money transfers. Your company may have so many vendors that a one-by-one transfer would take a whole lifetime. If this is the case, Volopay’s vendor management software presents an option of uploading all your vendor information, enabling a faster pay-out process. Along with this, you also get the added benefit of managing all your vendors at one single dashboard.
Advantages of using Volopay’s vendor management platform
Volopay’s vendor management platform offers your company a wide range of advantages and convenient options for vendor invoice management and vendor tracking system.
1. Set up recurring payments so that you don’t have to worry about the money transfers every month.
2. Monitor all your spending and transactions in real-time so you know where, when, and why of every transaction.
3. Construct a multi-level approval process according to your company, so every transaction is examined for its genuineness.
4. Automate invoice management and maintain transparent data visibility for smooth vendor management.
FAQs
Absolutely! Our feature helps you with real-time transaction monitoring, risk assessment, and invoice processing to ensure secure streamlining of vendor payouts.
Vendor managed inventory works by fabricating cooperative and mutual relationships between you and your vendors. Implying that both you and your vendor share the risk and the benefits. By looking over your company’s inventory, the vendor can help manage the whole supply chain.
After the integration of your accounting software with Volopay, every expense made is assigned to a particular Chart of Accounts or Tracking Category when submitting an expense for review. These accounting fields can be made mandatory to complete an expense, so it automatically transforms into a pre-filled during expense verification and sync.
Volopay has added a new dimension to the way we make payments to vendors, and the FX fees are so low.
Mitul Doshi, President Finance & ops, Invideo
Trusted by finance teams at startups to enterprises.