Traditional financial institutions still rely on manual tracking when it comes to the vendor management component of their workflow. They make use of spreadsheets, email, and shared files on online drives instead of a dedicated vendor management platform. A common misconception in the financial industry is that investing in a Vendor Management System (VMS) is more expensive than manual processes.
Vendor management is the series of steps that an organization takes to control costs, reduce risks and ensure excellent service deliverability to its vendors. In the long run, this enables these organizations to derive actual value from their vendors without having to set unfair spending limits and budgets.
In this article, we will dissect the reason why an increasing number of financial institutions are adopting vendor management software.
What Constitutes A Financial Vendor Management System?
The work involved in vendor management includes sourcing the right pricing information, keeping up the quality of work, managing relationships with multiple vendors, etc. Having all of these constituent steps of the process working efficiently is not feasible only with manual methods that traditional institutions tend to adopt.
A financial or non-banking financial organization stands to gain a large selection of new vendors by implementing the appropriate vendor management strategy. For example, in the accounting finance industry, most accounting firms utilized accounting project management software to organize the work of each employee. This helps provide a whole new set of choices resulting in better cost-effectiveness. A super admin can benefit from a centralized view of the vendor contract statuses for better decision-making. The following are the various ways a VMS is beneficial:
Vendor Status Documentation
A lack of a centralized storage platform means that organizations are always updating their spreadsheets. Without a VMS, the manual processes for vendor management involve each person maintaining their own files. Some of this crucial vendor documentation may not even get updated periodically because of improper interlinking.
Financial institutions dealing with vendor documentation with manual methods run several risks including redundancies, capturing errors, and so on. This vital information is often left in email inboxes, filing cabinets, and unindexed piles of papers. Vendor management software bypasses the need to keep manual track of all this documentation.
VMS creates a centralized location to store all relevant documentation and vendor reports. The specific vendor documentation is available for each vendor along with an integrated view of the performance of all the vendors.
Standardization And Risk Management
Prioritizing vendors in the order of vendor criticality is essential for an effective vendor management strategy. In manual processes, this is often taken up by separate relationship managers for each vendor account. So one relationship manager's assessment of criticality might not match with that of another. A standardized VMS alleviates this problem as it carries out real-time assessment diagnostics for integrated prioritization.
The regulatory compliance of vendor management tends to coincide with other areas of a financial organization's workflow. For instance, the regulation on security breaches may have to address vendor management in addition to cybersecurity. With the standardization that a proper VMS brings, duplication of such effort is reduced and the risks involved are vastly reduced as a result.
When tasks are carried out via spreadsheets, information about tasks that are completed is not readily available to the concerned manager. That functionality is, however, built into a state-of-the-art VMS in the form of a live dashboard. Managers then don't have to waste time following up with the vendor management tasks.
Task management and full visibility of the tasks' workflow is a major contributing factor to the large-scale adoption of VMS. Tasks do not go amiss due to human oversight. Additionally, the reporting that follows the completion of a task is also updated in a timely manner and available for edits in real-time.
Manual reporting from spreadsheets for report creation can be a hell of a time-consuming bit of grunt work. It consists of going through page by page of spreadsheets to create a pleasing graphic at the end. This can instead be done through an integrated system such as the VMS.
While it generates rich reports based on vendor insights, a good tracking mechanism for future reference is also something provided by a VMS. A vendor audit trail refers to the documented flow of vendor transactions in the organization's past. Both internal and external auditors use these to track down prioritization errors and financial statement mismatches.
Audit trails have been a part of accounting and procurement applications, but also find a useful application in VMS. They help in risk management, fraud prevention as well as in regulatory compliance implementations. This can help set proper limits to vendor prioritization in the long run as well.
With a robust alternative for audit trailing, you can prevent potential liability claims, help monitor data for security breaches, and ensure proper protocols are followed. Keeping a record of this data can help pinpoint who is responsible for each task and how far along they are in completing the said task.
Reducing Margin For Error
A VMS enables financial organizations to ensure that risk practices that keep them safe have been implemented in place. Vendor risks usually arise from minor errors in the vendor acquisition and management lifecycle that are not handled at the right point in the lifecycle.
By reducing the margin for error in the vendor management practices of your organization you also reduce the risks related to financial, operational, compliance, and data security. The impact of the risks must regularly be assessed based on the vendor's risk appetite. With the proper software-based VMS, you can ensure that timely planned mitigation measures are in place.
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Excel In Service Deliverability With A Robust VMS
An efficient VMS is an online web-based tool that serves as the central node to manage all vendor-related activities of any organization, be it financial or not. For a financial business to ensure improved efficiency and long-term growth in a cost-effective manner, maintaining ideal vendor relationships is highly essential.
You can boost sales productivity and vendor experience with an intelligent and intuitive VMS and other such financial technologies. To understand how Daffodil can help you in this area, discover our FinTech Solutions today.