Vendor onboarding checklist for finance teams: your 5-minute sanity check and digital paper trail

The Three-Phase Framework for Vendor Onboarding

For a growing startup, a new vendor relationship often begins with excitement. You have a signed contract for a critical service or software that promises to accelerate growth. But then an invoice lands in your inbox, and the simple task of paying it becomes a sudden scramble. The operations lead or founder running finance is left asking: do we have their bank details? What about a W-9? This ad-hoc process often leads to delayed payments, compliance risks, and a frantic clean-up at year-end. Implementing a structured vendor onboarding process is one of the first steps in building a scalable finance function. It protects your startup from fraud, ensures tax compliance, and maintains positive supplier relationships from day one.

To prevent the process from feeling overwhelming, it helps to break it down into three distinct phases: Verification, Documentation, and System Setup. This simple supplier approval process acts as a guardrail, preventing the most common pain points for early-stage companies. It stops you from accidentally paying a fraudulent entity, eliminates the year-end scramble for missing tax forms, and ensures you have all the correct details to make the first payment on time. Thinking about how to set up new vendors in startup finance through this framework turns a reactive, messy task into a predictable, low-friction workflow that can scale as your company grows from five suppliers to fifty.

Phase 1: Verification (Your 5-Minute Sanity Check)

Before you request any sensitive information, a quick, preliminary check can save you from significant headaches. This is not a deep, enterprise-level supplier due diligence checklist; it is a brief sanity check to confirm the vendor is a legitimate business entity. The key question to answer is: what is the minimum I should do to confirm a new vendor is legitimate before proceeding?

Perform a Digital Footprint Review

First, perform a basic digital footprint review. Does the company have a professional website with clear contact information and service descriptions? Do its key employees have credible LinkedIn profiles that match the company? A lack of a coherent online presence, or a website that seems hastily put together, can be a red flag. This initial step helps filter out phantom companies or unsophisticated operators.

Confirm Corporate Registration

Next, verify the business is officially registered. For a US-based company, a quick search on the Secretary of State's business registry in their state of incorporation confirms they are a registered entity. For a UK business, a similar check can be done for free on the Companies House website. This step confirms you are dealing with a formal business structure and not just a brand name without a legal entity behind it.

Conduct a Sanctions Check

Finally, for companies in certain industries or with global operations, a sanctions check is a crucial step. According to the U.S. Treasury, "U.S. Treasury's OFAC (Office of Foreign Assets Control) list is a standard sanctions check for vendors, particularly for companies in fintech or with international operations." This simple, searchable list helps ensure you are not engaging with restricted individuals or entities, a key part of your vendor compliance requirements. Engaging with a sanctioned entity can result in severe legal and financial penalties.

Phase 2: Documentation (The Essential "Digital Paper Trail")

Once you have verified the vendor is legitimate, the next phase involves collecting the core documents that form your official record. This is the most critical step for ensuring tax compliance and creating an auditable trail. Remember, before you can pay anyone, you absolutely must have the right documents on file. This discipline establishes financial control from the very beginning of the relationship.

Collect Agreements and Contracts

The foundation of the relationship is the signed agreement. This is typically a Master Services Agreement (MSA) that governs the overall relationship, along with a Statement of Work (SOW) detailing specific deliverables, timelines, and payment terms like Net 30 or Net 60. As the finance lead, you should ensure these documents clearly state the payment schedule and any conditions for invoicing. This documentation clarifies expectations for both parties and is your first point of reference in case of a dispute.

Gather Correct Tax Forms

Next comes the most crucial element for tax purposes: collecting the correct tax forms. This is one of the most common new vendor setup steps that trips up startups, leading to significant penalties if handled incorrectly.

• For U.S. Vendors: You must collect a completed Form W-9. As per IRS regulations, "A valid W-9 form is required for most US-based service vendors paid over $600 in a year to issue the required Form 1099-NEC." This form provides the vendor's legal name and Taxpayer Identification Number (TIN), which are essential for year-end tax reporting. According to the IRS, "The IRS penalty for failure to file a correct Form 1099 can be up to $310 per form in 2024."
• For International Vendors (including the UK): For any vendor outside the U.S., you must collect the appropriate Form W-8, typically a W-8BEN for an individual or a W-8BEN-E for a business entity. This form certifies their foreign status and is critical for withholding tax compliance. IRS regulations state, "Without a valid Form W-8 (e.g., W-8BEN, W-8BEN-E) from a foreign vendor, U.S. law may require withholding up to 30% of their payment to remit to the IRS."

A scenario we repeatedly see involves the critical distinction between a legal business name and a DBA ('doing business as'). Consider a SaaS startup that hires a marketing agency known as "Growth Rocket." They receive an invoice from Growth Rocket and prepare to pay it. However, when they request the W-9, they discover the legal entity name is "Jane Smith LLC." Paying the vendor under the wrong name in their accounting system would create a mismatch for 1099 reporting, requiring a painful correction process at year-end.

Securely Obtain Banking Details

Finally, you need to collect their banking details. It is critical to avoid insecure methods like plain email, which are vulnerable to interception and fraud like Business Email Compromise (BEC). Instead, use a secure online form tool or a dedicated portal within an Accounts Payable platform. Additionally, use account validation tools to confirm banking details are correct before initiating a payment. Account validation resources help reduce payment fraud and costly misdirected transfers.

Phase 3: System Setup (Making it Official)

With all documentation in hand, the final phase is to correctly enter the vendor into your financial systems. This step ensures accurate bookkeeping, streamlined payments, and clean reporting. Properly adding new suppliers to accounts from the start prevents data issues down the line and makes your financial records reliable for investors and auditors.

Create the Vendor Profile in Your Accounting Software

In your accounting software, whether QuickBooks for U.S. companies or Xero for those in the UK, navigate to the vendor or supplier section. The first step is creating the new vendor profile. The most important rule here is to use the vendor's legal name as provided on their W-9 or W-8, not their brand name or DBA. This ensures your records align perfectly for tax reporting.

Attach All Documentation

Next, attach all the documents you collected directly to this new vendor profile. Upload the signed SOW, the completed W-9 or W-8, and any other relevant agreements. This creates a centralized, single source of truth, so you never have to hunt through emails or shared drives for a contract again. When your auditor asks for a specific vendor agreement, you can retrieve it in seconds.

Map to Your Chart of Accounts

Then, set a default expense account from your Chart of Accounts. This tells your software how to categorize payments to this vendor automatically, which streamlines bookkeeping. For a biotech startup, a contract research organization (CRO) would be mapped to an R&D expense account. For an e-commerce company, a packaging supplier might map to a Cost of Goods Sold account. This simple mapping improves the accuracy of your financial statements and gives you a clearer picture of your spending.

Enter Payment Information

Finally, securely enter the vendor's payment information, such as ACH details or international wire information, into the appropriate fields in your accounting or payment software like Bill.com or Melio. Double-check account and routing numbers against the secure form you received. Set default payment terms (e.g., Net 30) in the system to match the contract, ensuring your payables aging reports are accurate from day one.

Scaling Your Process: From Spreadsheet to Software

Implementing best practices for onboarding suppliers does not require expensive software from day one. The reality for most pre-seed to Series B startups is more pragmatic. You should start with a simple system and evolve as your transaction volume increases. At an early stage, the right process is one your team will actually follow consistently.

Your Starter Stack: Forms and Sheets

Initially, a simple Google Sheet acting as a vendor master list, combined with a secure Google Form or Jotform to collect W-9s and banking information, is a perfectly viable solution. The vendor list should track key details like legal name, service type, contact information, and date of W-9 receipt. This "starter stack" is organized, low-cost, and far better than managing everything through scattered emails.

When to Upgrade to AP Automation

As your company scales and the number of vendors grows past 20-30, this manual process will become a bottleneck. Signs that you are outgrowing your system include late payment fees, an increase in payment errors, or your finance lead spending hours each week on manual data entry. This is the point where AP automation platforms like Ramp, Bill.com, or Melio become invaluable. These tools integrate with QuickBooks and Xero to automate the entire process, from vendor data collection via a secure portal to invoice processing and payment execution. They provide the control and efficiency needed as your company matures.

A Simple Email Template to Get Started

To help you start today, here is a simple email template you can adapt for your process:

Subject: New Vendor Onboarding: [Your Company Name] + [Vendor Company Name]

Hi [Vendor Contact Name],

We're excited to get you set up in our payment system. To process your invoices promptly and ensure compliance, please provide the following:

1. A completed and signed copy of the attached Form W-9 (for U.S. vendors) or Form W-8BEN-E (for non-U.S. business entities).
2. Your banking details for payment via ACH/wire transfer. Please provide these through this secure link: [Link to Secure Form]
3. The best email address to receive payment notifications.

Let us know if you have any questions. We look forward to working with you.

Best,
[Your Name]

Practical Takeaways for Startup Finance Leads

Building a sound vendor onboarding process is a high-leverage activity for any early-stage startup. It establishes financial control, mitigates compliance risk, and builds a foundation for scalable operations. By following the simple three-phase framework of Verify, Document, and System Setup, you can avoid the most common pitfalls. Always collect the correct tax form (W-9 for U.S., W-8 for international) before the first payment is made, use the vendor's legal name in your accounting system, and start with the tools you have today, knowing you can graduate to more sophisticated software as you grow. For more resources, see the vendor management hub.

Frequently Asked Questions

Q: When is the absolute best time to collect a W-9 or W-8 from a new vendor?
A: The best practice is to collect the appropriate tax form after the contract is signed but before any work begins or the first invoice is issued. You must have it on file before you can pay anyone. Making it a required step before system setup ensures you are never chasing documents after a payment is already due.

Q: What is the main difference between a contractor and a vendor?
A: In practice, the terms are often used interchangeably. Typically, a "contractor" refers to an individual (a freelancer or consultant) while a "vendor" or "supplier" refers to a business entity providing goods or services. For finance teams, the onboarding process is nearly identical for both; you still need to verify them, collect a W-9 or W-8, and set them up correctly.

Q: How often should we refresh vendor documentation like W-8 forms?
A: While a Form W-9 from a U.S. vendor generally does not expire, a Form W-8 from a foreign vendor is typically valid only for three calendar years after the year it is signed. It is critical to have a process to track these expiration dates and request updated forms to remain compliant with IRS withholding rules.

Q: What should we do if a U.S. vendor refuses to provide a completed W-9?
A: If a vendor fails to provide a valid Taxpayer Identification Number via a W-9, your company may be required by the IRS to perform backup withholding. This means you must withhold a percentage of their payments (currently 24%) and remit it to the IRS. This step should be communicated clearly to the vendor, as it often encourages prompt compliance.