Vendor Management System (VMS) Guide

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Estimated reading time: 4 minutes

Owning a small business is rewarding but also demanding. It requires time, effort, and dedication to ensure everything runs smoothly. From managing finances and employees to marketing your product or service, many tasks and responsibilities must be taken care of. And let’s not forget the process of finding, engaging, and managing the right third-party vendors needed to run a business.

Commonly used third-party vendors include suppliers, distributors, equipment dealers, independent contractors, marketing companies, and freelance workers. Think of them as the external workforce. Business owners must always stay on top of their third-party vendors, or they will be presented with managerial and administrative challenges that, over time, can spiral out of control. However, a vendor management system (VMS) can help streamline the process of managing vendors. If you want to learn about vendor management systems and how they can benefit your small business, keep reading this Balboa Capital blog article.

What is a vendor management system?

Vendor management is essential to any business, particularly those that utilize many third-party vendors. It involves managing vendor relationships to ensure that they meet the company’s needs. Today’s systems allow businesses to manage vital tasks like vendor project and contract management, vendor payroll, and vendor compliance. A robust VMS can help companies to reduce costs, increase efficiency, maintain quality standards, and gain a competitive advantage in the marketplace.

By implementing a vendor management system, businesses can streamline their processes and ensure they get the best value for their money when dealing with vendors. A VMS also allows companies to monitor their vendor relationships better, providing insight into their performance. This can help pinpoint areas of improvement and enhance supplier relationships and increase operational efficiency in the long run.

How to choose a VMS for your business.

Choosing a vendor management system for your business can be a daunting task. With so many options available, it can take time to decide which one is the best fit for your needs and goals. When shopping around, looking at features, cost, scalability, and ease of use is essential. You should invest in a system that is manageable for your company, that suits your company’s immediate needs and is easily scalable.

Also, contact VMS providers via email or phone and ask them questions about their products and add-ons. Understanding the different types of VMS solutions, how they work, and their benefits will help you make an informed decision when investing in one.

Features and functionality.

As mentioned above, most vendor management systems have many features and options. A sound vendor management system should have certain features that make it easy to use and understand. They include automated vendor onboarding, contract negotiation, payment tracking, performance monitoring, invoice processing, and reporting capabilities.

With these features, companies can easily manage every aspect of their vendor relationships from a convenient portal. This reduces the confusion, time-wasting, and late payments associated with having vendor information in multiple systems, email inboxes, and servers.

Onboarding and training.

Once you have decided on a VMS for your company, you and your employees must receive training on how to use it. Ask the VMS provider what support level they provide and for how long. It is a good idea to involve your information technology (IT) manager or team, as they must ensure the VMS is appropriately integrated with your company’s network.

Setting up your VMS is relatively straightforward and involves adding vendors, scheduling workflows, updating checklists, and assigning tasks. Depending on your business, you may also need to connect your VMS to third-party apps for payroll, email, e-signatures, file storage, etc.


By leveraging VMS technology, small businesses can ensure they work with the best vendors to maximize efficiency. With a VMS in place, companies can easily track vendor performance data and make informed decisions about which vendors to use in the future.

Furthermore, a VMS can automate tedious tasks like contract management and invoice processing. In short, a VMS is invaluable for managing vendor relationships, optimizing supply chain operations, and reducing costs.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.