We’ll provide you with 10 vendor onboarding best practices—from creating an onboarding plan and discussing business processes to sorting out required documents and documenting payment methods—that can help you design a smooth and productive onboarding process. We also have a free vendor onboarding checklist, as well as templates for vendor registration, credit card acceptance, and automated clearing house (ACH) authorization within the checklist to get you started.
1. Create an Onboarding Plan
A smooth and informative onboarding plan makes the onboarding process easy to implement. You must always have the plan ready to implement whenever there’s a need to onboard a new vendor. You may modify the plan per vendor, but the overall framework must remain the same. At the least, an onboarding plan must have the following:
- Onboarding slide decks: These contain your company’s mission, vision, and goals, background of the business, the onboarding schedule, and the whole onboarding program.
- Onboarding packet: This should have a welcome letter, vendor registration form, authorization forms, legal documents, and other necessary documents.
2. Gather Essential Vendor Information
Part of the onboarding process is gathering vendor information such as company name, alternative name (doing business as or DBA), contact information, tax information, bank details, and other relevant information. This information is necessary when fully onboarding a vendor in your accounting system.
You can use the vendor registration form to get essential information that is useful for the onboarding process. Note that you should always disclose to vendors what kind of information will be stored in your database.
3. Discuss Your Business Processes With the Vendor
During vendor onboarding, it’s important to discuss how you do business. Vendors would like to know your internal workflows on the purchasing side so that they understand how things work on your end. As much as possible, you need to discuss in detail the following:
- Contract bidding process
- Evaluation of proposals, quotes, and estimates
- Purchasing process
- Expectations regarding performance
- Payment modes, methods, terms and conditions
- Returns and refunds policy
4. Ask the Vendor to Discuss Their Business and Ordering Process
As a buyer, you would also like to know how your vendors conduct business and process orders. You may request vendors to orient you about their business, history, and achievements. This is also the best time for you to know their company leadership, values, and culture.
You can ask them to give a quick overview of the ordering process so that you know when the best time to order from them is. Knowing their process helps you plan your future orders and prevent stockouts and delays.
Vendors can also use this opportunity to discuss with you how they produce goods, the standards they uphold in the production process, and the quality checks they perform to ensure the best quality products. While the vendors talk about their processes, you should also open a conversation with them about expectations.
It’s best that both of you know what kind of things you expect from each other, especially in keeping up with delivery time and quality.
5. Discuss Legal Documents During Onboarding
Onboarding is an opportunity for you to discuss legal documents. You should explain to the vendor why these documents are important in your relationship. For example, you can give a mutual nondisclosure agreement (NDA) to protect confidential information that some of your vendors will access as part of their responsibilities.
You can also give a service-level agreement (SLA) to define the level of service expected from vendors and possible remedies in case the vendor violates the agreement. An SLA is important for a vendor who is responsible for your operations, of which the noncompliance of such a vendor can cause disruption in the normal course of business.
To better navigate the legalities involved, it’s best to have your lawyer review standard contracts or invite them to onboarding for special contracts. You should also allow the vendor to let their legal team review these legal documents before asking them to sign.
Our vendor onboarding checklist above contains a list of documents that you might want to ask from your vendor. Feel free to modify the list as you see fit.
6. Request for Form W-9 and for Employer Identification Number
Once you have decided to order from a vendor, it is crucial to ask for their Form W-9 and employer identification number (EIN). Form W-9 is a tax form that provides the vendor’s tax identification number (TIN) and other tax information. This form is crucial for knowing whether payments to the vendor will need to be reported on Form 1099.
If any vendor refuses to provide an EIN or W-9, you shouldn’t do business with them as you won’t be able to meet your IRS Form 1099 reporting obligations. Note that independent contractors aren’t required to have EINs—but they can get one if they choose. If they don’t have an EIN, they will need to provide their Social Security Number on Form W-9 instead. Our article on how to get an EIN discusses the process of securing it and why you need to have one.
QuickBooks Online can track 1099 payments as you process payments for independent contractors. Read our QuickBooks Online review to learn more about the accounting software.
7. Discuss Data Privacy Considerations
Your vendor might be concerned about how you handle their data. There are federal and state privacy laws that require your business to uphold data privacy protections and safeguards. It is part of due diligence to discuss your data privacy policies with vendors so that they’ll know how you’ll collect, use, and store their information. If the vendor is very concerned about data privacy, you may want to invite your lawyer to discuss this matter. Otherwise, you can do it yourself.
8. Require a Certificate of Insurance for Subcontractors
Vendors and subcontractors must at least have general liability insurance if you wish to onboard them. We don’t recommend onboarding vendors without insurance because it is risky.
You may also require other types of insurance like professional liability insurance to cover the cost of lawsuits related to poor performance, mistakes, and delays. Check with your own insurance company about what requirements they have for insurance for your subcontractors to be insured.
9. Agree on Payment Methods and Terms
Onboarding is also the best time for you to discuss payment terms. You should discuss with the vendor if they’re willing to give you a longer payment term and early payment discount for your purchases. The vendor would be interested in the payment method for future transactions. You can pay in cash, credit cards, debit cards, or ACH, depending on your agreement with them.
We recommend choosing the most convenient payment method to avoid delays in payment. Moreover, discussing more payment options to the vendor, such as installment purchases, can open up more flexibility in how you do business with them.
10. Document Preferred Payment Method
Once you and the vendor have agreed to a payment method, you should sign an authorization form to document the preferred payment method. For credit card payments, use a credit card authorization form that includes credit card details. For ACH payments, you’ll need an ACH or direct deposit authorization form. These documents serve as agreements between two parties in case you or the vendor encounter misunderstandings in the future.
Frequently Asked Questions (FAQs)
Yes, it is, because this is the best time to set expectations, gather vendor information, get to know the new vendor, and establish a good relationship with them.
You need to have an onboarding plan to serve as a guide that can help in conducting a smooth onboarding presentation. You also need to have an onboarding packet that includes important documents and brochures that can help vendors understand your business and processes.
Vendor onboarding is the process of searching, vetting, and coordinating with potential vendors who can provide goods and services to your business. Vendors who can provide the best product at a good price can help your small business deliver high-quality products and boost profits. With our 10 vendor onboarding best practices, I hope you can curate an outstanding vendor onboarding experience for your small business.