Businesses using service providers need best practices and software that facilitates service provider management.
What is Service Provider Management?
Service provider management is managing and making tax-compliant payments to external business resources, including service companies and independent contractors. Service providers are third parties performing outsourced services with expertise to handle or improve a business process or customer-facing service.
Which Industries Can Benefit from Service Provider Management?
All industries benefit from service provider management, including businesses, nonprofits, and government entities. The task applications of service providers are wide-ranging, making them essential to many organizations. Organizations can avoid additional hiring by using third-party service providers for outsourcing business processes and other services.
Service providers include payroll outsourcing companies, online services companies, IT and cloud service providers, financial services, healthcare services, business services, professional service firms (accounting firms and law firms), educational services, janitorial companies, and maintenance providers.
These service providers may be associated with large companies, small businesses, or solo practitioners invoicing as suppliers or non-employee independent contractors. Consultants and Independent contractors, including freelancers, can be used to accomplish specific tasks and propose new strategies.
Service Provider Management for Accounting and AP Tasks
When your business (or another type of organization like a nonprofit) uses outsourced service providers, it needs system infrastructure software to manage these external service providers. Tipalti AP automation and mass payments software products have ERP integration to sync data and extend the functionality of your ERP or accounting software.
Tipalti AP automation software:
- Digitizes accounts payable invoices received from nonemployee service providers
- Collects service providers’ applicable tax forms during onboarding before the first payment
- Validates suppliers by matching TINs (tax ID numbers) to government databases
- Verifies invoices using 26,000+ automated payment rules
- Automatically codes invoices to general ledger accounts
- Automates approval routing
- Pays global suppliers in large batches
- With their choice of payment method, including many EFT types
- In 196 countries and 120 currencies
- Syncs data with your ERP and provides real-time payment reconciliation
- Includes an invoice document repository and payment status notifications
- Enables business intelligence through spend visibility and AI-driven spend queries
- Provides simple tax preparation reports for tax filings and an optional eFiling solution for 1099-NEC and 1099-MISC forms through partnered Zenwork Tax1099 software
While some companies use international service providers for accounts payable outsourcing, your business will benefit from exercising more control and real-time visibility over spend by using Tipalti’s scalable and cloud-based AP automation software internally. You’ll increase payment timeliness and payment method choices to keep your global service providers satisfied.
Top 10 Tips for Managing Your Service Providers
10 tips as best practices for managing service providers are:
- Create a service provider company policy.
- Vet the qualifications and performance of service providers.
- Establish service level agreements (SLAs).
- Consider using NDAs for some service providers.
- Digitize and store service provider agreements in a contract repository.
- Collect tax forms upfront when onboarding service providers.
- Validate service provider TINs (taxpayer IDs) before payment.
- Reduce cybersecurity risks.
- Consider Managed Service Providers (MSPs) for IT.
- Pay global service providers promptly and automate payment status.
1 – Create a Service Provider Company Policy
Businesses and other organizations must create and enforce compliance with their service provider management policy.
The company policy should describe standards and procedures for contracting with service providers, including:
- Approved methods for sourcing and evaluating service providers
- Obtaining at least three competitive bids to compare pricing
- Independent contractor status
- Contractor financial stability
- Insurance requirements
- Service level agreements (SLAs)
- NDA agreements for non-disclosure of confidential and proprietary information
- Non-compete clauses, when applicable to the type of services
- Intellectual property ownership language to include in contracts
- Software security
- Data privacy
The service provider company policy should also cover service provider requirements, company budget, purchase order requirements, payment terms and timing, and payment approvals.
2 – Vet the Qualifications and Performance of Service Providers
Your organization must hire the best service providers to meet its business needs and accomplish timely goals. To source service providers, get customer referrals, and read ratings, reviews, case studies, and testimonials.
3 – Establish Service Level Agreements (SLAs)
In the contract, include a service level agreement (SLA) covering service delivery requirements by service providers.
According to CIO, an authority on IT services, in its article, What is an SLA? Best practices service-level agreements:
The SLA should include not only a description of the services to be provided and their expected service levels, but also metrics by which the services are measured, the duties and responsibilities of each party, the remedies or penalties for breach, and a protocol for adding and removing metrics.
4 – Consider Using NDAs for Some Service Providers
Because the nature of services differs for each service provider your business uses, decide which service providers should sign a non-disclosure agreement to protect business confidentiality. Store each NDA agreement with the associated service provider contract. The NDA or other contract provision must ensure company ownership of intellectual property developed for the company by third-party service providers.
5 – Digitize and Store Service Provider Agreements in a Contract Repository
Use a contract management system repository to store and manage service provider agreements with SLAs and NDAs. Some of these systems, like Docusign CLM (contract lifecycle management), enable the creation and signing of agreements, include a document repository, and control the version history of these contracts. Certain ERP systems, such as NetSuite, have an optional contract management module.
6 – Collect Tax Forms Upfront When Onboarding Service Providers
For efficiency and timely supplier tax filings by payers, use AP and accounting automation software from Tipalti, which requires collecting supplier forms at onboarding before the first payment is made to your service providers and other suppliers.
This process for managing service provider tax form submissions will avoid the need for staff follow-up with suppliers at the end of the year (with possibly no payment leverage). This lets your organization meet its obligations and tax deadlines for submitting 1099-NEC, 1099-MISC, and 1042-S information returns.
7 – Validate Service Provider TINs (Taxpayer IDs) Before Payment
Before paying service provider invoices, screening official government databases to validate taxpayer identification numbers like EINs (Employer Identification Numbers) or SSNs (Social Security Numbers) is essential. Validating the TINs will not only help prevent paying fraudulent invoices but also let your company avoid penalties for incorrect TINs on information returns.
Your company can validate service provider TINs upon onboarding and before approving each invoice for payment with Tipalti payables automation software.
Enhance service provider management with Tipalti’s AP automation
Manage service providers with tax-compliant, self-service onboarding, efficient and timely global supplier payments, and strong payment controls.
8 – Reduce Cybersecurity Risks
Your business or non-profit organization must maintain adequate cybersecurity protection by implementing critical security controls that meet industry standards. Internally and when using third-party service providers, ensure that cybersecurity practices are enforced to reduce your organization’s risks. Data protection is essential for business continuity, privacy of sensitive data, and avoiding or lessening the risk of cybersecurity ransom attacks.
CIS®, the Center for Internet Security, is an organization that provides CIS Controls and CIS Benchmarks communities, plus other resources for the set of standards and webinars to protect global companies and organizations against cyber threats.
9 – Consider Managed Service Providers (MSPs)
SMBs (small and medium-sized businesses), nonprofits, and some government agencies may not have sufficient knowledge or in-house resources to securely manage their IT (information technology) function. Third-party management service providers can fill these gaps. MSPs provide IT infrastructure management (including software systems, networks, hardware, and data centers) and network monitoring as a security service for risk management. MSPs can assist your company with incident response measures.
10 – Pay Global Service Providers Promptly and Automate Payment Status
To attract and retain service providers, implement a scalable accounts payable automation system that lets your business pay its service providers efficiently and timely. The software should provide automated payment status notifications to reduce staff inquiries and follow-up time regarding invoice payment timing.
Summing It Up
Businesses and other organizations requiring excellent service provider management deploy best practices and software apps to operate effectively, implement new strategic initiatives, and achieve their business goals. This guide provides 10 tips for applying best practices to service provider management.
Organizations need a system that captures contracts and service level agreements (SLAs) for service providers. AP automation software for service provider management should provide document management for digitizing invoices, automating invoice processing and approval routings, and simplifying the process of making accurate, timely global payments to keep service providers satisfied and detect payment fraud. Learn more about global supplier payments and Tipalti finance automation software.
