Vendor setup and tax forms

Why vendor setup is a control, not admin

The vendor master file is the list of everyone your business can pay. Anyone who can add a record to it, or change the bank account on an existing one, can direct money. That is why the person who wants to buy from a new vendor should not be the person who approves adding it, and neither of them should be able to release payments.

Setup is also when you have the most leverage. Before the first payment, a vendor has every reason to send you its tax form and correct details. After it has been paid, chasing a W-9 in January is much harder.

The onboarding steps

1. 1

   Request and approve the vendor

   The person who wants to buy asks for the vendor; someone else approves adding it. That split stops fictitious vendors.

2. 2

   Collect the W-9

   Get the legal name, federal tax classification, address and taxpayer identification number (TIN: an EIN or SSN) on a signed Form W-9 before the first payment.

3. 3

   Verify the tax ID

   Check the name and TIN combination, for example with the IRS TIN Matching service if you are an authorized payer that files information returns.

4. 4

   Collect and verify bank details

   Take bank details on letterhead or a secure form, then confirm them by calling a phone number you already have, not one on the request.

5. 5

   Set terms and coding

   Record payment terms and the default GL account so the vendor’s invoices are coded consistently.

6. 6

   Set 1099 status

   Mark whether payments to the vendor are reportable on a 1099, based on its tax classification and what you pay it for.

7. 7

   Review the vendor list

   At least once a year, look for duplicates, dormant vendors and changed details, and deactivate vendors you no longer use.

The W-9 and 1099 rules AP needs to know

Form W-9 is how a US vendor gives you its correct TIN and tax classification. The classification on line 3a tells you whether the vendor is likely to be 1099-reportable. As a rule of thumb, individuals, sole proprietors, partnerships and LLCs not taxed as corporations are reportable when you pay them for services; corporations, including LLCs taxed as C or S corporations, generally are not.

The corporate exemption has important exceptions. Payments for legal services are reportable even when the law firm is a corporation, and so are medical and health care payments. Payments made by credit card or through a third-party payment network are generally reported by the processor on Form 1099-K, not by you.

Form 1099-NEC is due to the recipient and the IRS by January 31 of the following year. Track reportable payments by the date paid, not the invoice date. If a vendor will not give you a correct TIN, backup withholding at 24% of reportable payments may apply, which is why many businesses hold payment until a completed W-9 arrives.

Worked example: which vendors get a 1099-NEC

Four vendors were paid for services in 2026. (Illustrative vendors and amounts.)

Bank details and fraud red flags

The single most important habit in vendor management: never change bank details on the strength of an email, letter or invoice. Call the vendor on a phone number you already hold, not the one in the request, and confirm the change with someone you have dealt with before. Requests to pay new bank details are a classic route for diverting a genuine supplier’s payments.

When you review the vendor list, look for these warning signs:

• A new vendor paid very soon after it was set up.
• A dormant vendor, unused for months, that suddenly receives a payment or has its bank details or address changed.
• A vendor whose address, bank account or phone number matches an employee’s.
• Two vendor records with the same tax ID or bank account.
• A missing or invalid tax ID, or only a P.O. box or residential address.
• Round-number invoices, or amounts just under an approval limit.
• All of a vendor’s spend approved by the same single person.

Most findings in a review turn out to be legitimate. The point is that each one is explained and documented. Deactivating vendors you no longer use removes the easiest records to take over.

Doing it in software

Whatever system you use, the goal is the same: a W-9 status for every vendor, tax IDs stored securely and shown masked, and a clear 1099 flag. In Aequo AP, vendors are added under Vendors, W-9s are requested from Settings › Tax & 1099 with a secure link the vendor uses to submit its details, tax IDs are encrypted and masked to the last four digits, and approvers are warned when a 1099-eligible vendor has no W-9 on file. Aequo AP prepares draft 1099 records; it does not e-file them, so you file through your accounting system or a filing provider.