Supplier Evaluation and Selection

Supplier evaluation and selection is the procurement process of assessing potential suppliers against defined criteria before awarding business. The criteria typically include: price competitiveness, quality and reliability, financial stability, compliance with legal and regulatory requirements (appropriate licences, insurance, certifications), capacity to meet demand, and sustainability and ethical sourcing considerations. For AP purposes, the supplier selection decision has direct operational implications: the suppliers who are selected become the approved vendors in the vendor master, and their compliance with invoicing and payment term requirements determines how much processing friction they add to the AP function.

Supplier evaluation in industrial businesses often involves a formal Request for Quotation (RFQ) or Request for Proposal (RFP) process, a site visit or audit, reference checks with existing customers, and a commercial negotiation before an agreement is executed. For lower-value or more routine supplier categories, evaluation may be simpler -- three quotes, ABN verification, and confirmation of insurance coverage. The depth of evaluation should match the commercial and operational risk of the supplier relationship.

AP data in ongoing supplier assessment

After a supplier is selected and onboarded, ongoing performance assessment draws on both operational data (delivery performance, quality, responsiveness) and AP data. AP data provides an objective, transaction-level view of the supplier relationship: how frequently do their invoices require manual correction or exception handling (indicating invoice quality problems)? Are their invoices consistently formatted to allow automated processing? Do they invoice at the agreed rates or do invoices frequently differ from the PO? Do they respond to payment disputes or statement reconciliation requests within a reasonable timeframe?

These AP performance indicators complement the operational performance data that procurement and operations teams track. A supplier who delivers excellent service but invoices inconsistently -- creating high AP processing cost and exception rates -- is creating a hidden cost that the operational performance review would not capture. Incorporating AP data into the supplier review process gives the full picture of the supplier's total cost and value to the business.

Supplier risk and AP controls

The supplier evaluation stage is also the right time to apply risk-based controls that will govern the AP relationship with that supplier. A new supplier should go through the same onboarding controls as any other -- ABN verification, bank account confirmation, GST registration check, and any required insurance or licence confirmation. A supplier identified as high-risk (new, unknown, operating in a fraud-prone category, or in a country with elevated payment fraud risk) should have additional controls applied: mandatory three-way matching, dual approval for all invoices, and a hold on bank account change requests pending independent verification. These controls are most effective when applied at onboarding rather than after the first problem occurs.