Vendor Approval

What is vendor approval?

Vendor approval is the process of vetting and authorizing suppliers before doing business with them. Approved vendor lists ensure you only pay legitimate businesses with verified credentials. The approval process might include verifying tax ID, checking references, confirming insurance, and obtaining W-9 forms. Unapproved vendors cannot receive payments in a controlled environment.

Setting up a vendor approval process

Define what information you need before approving a vendor. At a minimum, collect a W-9 for tax reporting. Consider business license verification, insurance certificates for contractors on site, and credit references for vendors offering terms. Assign approval authority. Determine who can add vendors to the approved list and what documentation they must review before approval.

Preventing vendor fraud

Fraudulent vendor schemes create fake suppliers to divert payments. Vendor approval controls prevent adding fictitious vendors. Require verification of address and banking information through independent sources, not just vendor-provided documents—separate vendor setup from payment processing. Review the vendor master file periodically for dormant or suspicious entries.