Vendor Relations

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Q: We received a Notice of Assignment and Sales of Accounts from a loan company regarding one of our vendors. They say that payments should be made to the loan company and not the vendor. What directon should we receive from our vendor to ensure that we pay the correct party?

A: Ordinarily you would expect a letter from your vendor explaining their action, identifying and authorizing the company to whom future payments should go. If you have not received any communication from your vendor about this, we recommend that you contact them before making any payments to the loan company.

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Q: Do you have some procedures that address vendor bankruptcies and class action lawsuits? Also, Please let me know of any standard rules that I might incorporate into my accounting procedures.

A: The answer to your question depends on the situation. In general if you have an outstanding balance owed to a vendor who has delivered product or services to your company, then you will most likely be required to make payment in full to the vendor or the court appointed trustee of the bankruptcy filing. However, if the products and services were not delivered, then in the normal course of business, payment is not necessary.

As for the class action lawsuits, we would need to get more information regarding what you are looking for here. These types of lawsuits try to bring in every possible opportunity to get payments or extract money for damages from plaintiffs who feel that they have been wronged.

Also, we are not aware of standard accounting practices in your situation. You and your vendor appeared to be progressing along in your normal course of business and trying to honor your agreements. One business practice to consider is to get the opinion of your legal counsel when you are notified that a vendor has entered into bankruptcy proceedings. Often times the bankruptcy court will issue certain restrictions on how the vendor should operate once they are under bankruptcy protection in order to protect assets that may need to be distributed to creditors. Through your legal counsel you should probably request court documents that would govern how payments will be made to the vendor while they are in bankruptcy and before you make payments.

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Q: We tend to get a lot of invoices that are not addressed to our company correctly. If it's addressed incorrectly, are we still liable to pay it, or should we wait until we get a corrected invoice? If we pay it, what fraud and IRS risks are there?

A: Is this happening with many vendors, or repeatedly by one vendor? The first concern is to be sure that the invoice is valid. Confirm that the vendor is legitimate and what is being invoiced was in fact received—products or services, price, etc.

Assuming the invoices are legitimate, an incorrect name and/or address is a mistake that should be corrected to avoid possible confusion and potential problems with 1099 reporting, with the risk of backup withholding. Contact the vendor(s)’s billing department(s) and ask them to correct their customer file; it may be best to send them a new Form W9. (If they have to report payments made to you, and submit your tax ID that does not match your company name, the IRS will issue a CP2100 and the vendor will be required to contact you for a W9 to make a correction; if they do not receive a correct tax ID and name match from you, they must begin withholding 28 percent of the payments made to you.)

Your company does have a responsibility to pay its vendors, and a misspelled name on the invoice does not change that. However, incorrect names and addresses could lead to problems such as duplicate payments or perpetration of fraud.

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