Why Vendor Validation Is Now a Critical Accounts Payable Strategy

Accounts payable (AP) is no longer just about invoices. With shifting global trade dynamics and increased regulatory scrutiny, AP teams face growing responsibilities and an opportunity to positively impact organizational well-being.

The current enforcement landscape is seeing an increase in penalties but no longer requires proof of intent. This means that even minor oversights can lead to serious financial consequences for organizations. Ensuring accurate vendor data and compliance has become essential, making AP a central player in risk management.

In this article, we’ll explore why vendor validation is now central to AP operations, outline key risks and present a practical framework for safeguarding your organization through smart automation.

The Rising Risk Landscape

In the United States, the last five years have seen an increase in government oversight of trade, vendor relationships and compliance. Agencies like the Office of Foreign Assets Control (OFAC) have broadened their enforcement reach and increased penalties.

In early 2025, OFAC updated or expanded sanctions involving multiple countries, including Iran, Venezuela and China.

It has become vital for business wellbeing to rigorously screen all vendors prior to engagement to avoid partnering with restricted entities. Even if an organization works solely with local vendors, regular screening is important to ensure compliance and avoid penalties.

Under strict liability regulations, “we didn’t know” is no longer a defense. AP teams must stay informed and take every precaution to avoid working with sanctioned vendors.

This means AP teams are liable for who they pay and staying informed about any regulatory or sanctions changes.

Consistent, well-documented compliance practices aren’t just a nice-to-have, they’re essential to protecting your organization. Gaps in compliance can lead to financial, operational and reputational risks.

Even if your team believes they’re following the rules, a lack of clear documentation or gaps in automation practices can still put your company at risk.

The Hidden Cost of Non-Compliance

Fines & Penalties

OFAC civil penalties can exceed $300,000 per violation.

• Audits risks
  Inadequate controls can trigger red flags during financial or tax audits.
• Reputational damage
  Vendor payment errors or compliance issues can erode stakeholder trust.
• Operational disruptions
  Invalid vendor data may lead to payment delays, procurement issues or duplicate payments.

AP’s Expanding Role In Risk Management

As the gatekeepers of outbound payments and vendor relationships, AP teams are uniquely positioned to identify vulnerabilities and mitigate risks before they escalate.

Today’s AP departments have evolved far beyond their traditional function as data entry, check printers or simple transaction processors. Today, AP plays a pivotal role in financial control, regulatory compliance and enterprise risk management.

By embracing these responsibilities, AP professionals can drive strategic value and become proactive stewards of enterprise resilience. However, this can only happen with the right tools and systems in place.

This expanded role means AP is now responsible for:

• Monitoring third-party risk: Vendors are extensions of your supply chain and financial ecosystem. AP teams must regularly assess and validate vendor legitimacy, data accuracy and compliance.
• Detecting fraud and irregularities: Because AP teams manage invoice processing and payment disbursements, they are on the front line and often the first to spot unusual patterns such as duplicate invoices, falsified data or mismatched records.
• Supporting audit readiness: From maintaining vendor files to documenting validation procedures, AP must ensure traceability and transparency in all actions taken.
• Strengthening internal controls: AP teams can help prioritize regulatory compliance by collaborating with finance, procurement and IT to enforce segregation of duties, build approval workflows and prevent policy overrides. This will help strengthen internal controls, ensure clear documentation and show due diligence.

AP is no longer just about cutting checks or paying invoices. The core of AP is about preventing the next big mistake before it hits your bottom line.

The Compliance-First Framework for Vendor Validation

Compliance shouldn’t be a scramble when an audit hits or a regulation changes. By designing a proactive framework, AP teams can turn vendor validation into a strategic advantage, not just a checklist task.

Here’s how to build a robust, repeatable process:

Step 1: Lay a Solid Foundation With Accurate Onboarding

Onboarding should never be just about payment details. Set the tone for compliance by getting vendor data right from the start. A key part of onboarding any new vendor should always be data verification and compliance.

Choosing the right tools to support your vendor validation process will not only help protect your organization today but also position you to respond quickly and confidently when regulations shift without warning.

AP’s mission in onboarding new vendors should be to confirm each vendor is legitimate and safe to work with. Your onboarding should include:

• Collecting verified tax forms
  Always require W-9s or W-8s as applicable, and ensure forms are filled out completely and correctly.
• Validating Tax Identification Numbers (TINs)
  Use IRS TIN Matching services to verify that vendor names and TINs match government records. This is an easy way to avoid 1099 mismatches and potential fines.
• Confirming physical addresses
  Run vendor addresses through USPS address validation or Google Address Validation to ensure they’re real, properly formatted and deliverable.
• Establishing business legitimacy
  When possible, confirm the vendor is registered and in good standing with their local jurisdiction.
• Checking sanctions list
  Always check new vendors against the most recent OFAC sanctions list. This list can change quickly, so it’s important you check it regularly.

Step 2: Don’t “Set It and Forget It” — Continuously Screen

Vendor data can become outdated faster than you think, especially in today’s political climate. Anticipate regularly evolving international sanctions and business changes that could affect a vendor’s status.

To stay current and compliant, AP teams should get in the habit of conducting ongoing validation checks as part of a monthly or quarterly rhythm.

• Sanctions screenings
  Routinely check the OFAC sanctions list, especially for international vendors or suppliers from high-risk regions.
• Status monitoring
  Keep tabs on vendors whose tax, registration or legal standing may change over time.
• Documentation discipline
  Log every check your team makes and update the status with timestamps. Whether automated or manual, maintaining a full audit trail is your best defense during reviews or audits.

Step 3: What to Do When a Vendor Is Flagged

Even with a strong vendor compliance strategy in place, issues will arise from time to time. What matters is how your AP team responds. To stay ahead, establish a clear, consistent process for handling concerns as they arise.

If a vendor is flagged during routine screening, use the following steps to take action swiftly and responsibly:

1. Verify it’s not a false positive: Sanctions lists often include common or similar names. Double-check that the flagged entity matches your vendor’s exact name, TIN and address. Confirm whether it’s a case of mistaken identity before escalating.
2. Contact the vendor through verified channels: If the issue involves a new or suspicious address, a change in banking information or contact name, reach out to the vendor using contact details already on file. Avoid using new contact or banking information until it can be verified. You may also consider a small test payment to check banking details.
3. In the case of new OFAC sanctions, proceed with caution: If a previously validated vendor has suddenly appeared on the OFAC sanctions list, it may be best to get legal advice.
4. Pause payments until cleared: Do not proceed with any payments until the vendor is fully verified and any issues have been resolved. If in doubt, err on the side of caution and seek legal input to avoid compliance breaches.
5. Document every action taken: Regardless of vendor status, it’s best practice to maintain a detailed log of every validation check, including TIN and address verification, identity confirmation, phone calls or automated vendor validation checks. A clear audit trail will protect your team and demonstrate due diligence in case of future scrutiny.

Having a well-defined response plan allows your AP team and organization to act decisively when faced with potential risks from compliance issues. By responding quickly, your team can help avoid turning a red flag into a costly mistake for your organization.

Step 4: Build Compliance Into the Workflow With Automated Controls

Technology makes it possible to enforce rules without relying on memory or manual effort. With automation tools, you can ensure that as little as possible falls through the cracks, even when the workload gets busier.

Choose a tool that offers:

• Real-time alerts
  Automatically flags new or existing vendors that match restricted entities or invalid information
• Payment holds
  Prevents funds from being disbursed until flagged records are reviewed and cleared
• Policy-based approvals
  Intelligent workflows that require additional approvals or secondary validation for high-risk vendors

Proactive compliance is your best strategy. Catch issues early and stay informed about any changes.

How Mekorma Supports AP Teams to Stay Compliant & Reduce Risk

Mekorma Vendor Validation can unlock efficient and consistent vendor validation and compliance practices.

Vendor Validation is a built-in feature within the Mekorma Payment Hub designed to ease the compliance burden while improving vendor data integrity.

With Mekorma, your AP team can:

• Automatically screen vendors against OFAC lists so you don’t have to
• Validate TINs with the IRS and street addresses with Google Address Validation and USPS for U.S.-based vendors
• Flag high-risk vendors for follow-up before payments are processed
• Automatically hold payments when risks are detected — no manual intervention required
• Maintain an audit trail that shows compliance checks were performed
• Schedule recurring validations to ensure ongoing accuracy

Mekorma Vendor Validation runs directly inside your ERP, making it a seamless part of your AP process for Microsoft Dynamics 365 Business Central and Dynamics GP.

Compliance Is Essential, But It Doesn’t Have to Be Complicated

Vendor validation has always been important, but in today’s shifting regulatory environment, it’s mission-critical. Now is the time for AP teams to embrace a strategic role in supporting their organization’s risk management and compliance.

Mekorma Vendor Validation helps simplify vendor validation, reduce human error and stay ahead of quickly changing rules. With automated safeguards and audit-ready documentation, you can embrace uncertainty with confidence.

Need Help?

If you want to learn more about approving your AP processes with vendor validation, contact us here or call 410.685.5512 for help.