The Indian payment gateway market is expected to register a CAGR between 2020 and 2025. Subsequently, the increase in demand for digital payment solutions is carving a path for faster, more reliable accounts payable and vendor payment processes. As a result, many businesses are pivoting away from paper-based invoicing and payments to automated end-to-end vendor payment management.
For businesses, investing in robust vendor management systems is crucial. These systems foster stable supplier relationships, build trust, and mitigate supply chain disruptions, thereby enhancing financial health and cash flow.
This comprehensive article explores the definition of vendor payments, vendor payment process flow, and the importance of a good vendor management system. Read on!
What are vendor payments?
Vendor payments are a crucial part of accounts payable management and the last step in the procurement cycle. In this step, the purchasing business calculates and disburses payments to its vendor against the invoice raised for goods and services purchased.
Also known as supplier payments, vendor payments are common but vital money transactions for businesses. Building a timely, seamless, and systematic vendor payment process and management helps ensure a healthy and stable relationship with its vendors and avoid supply chain bottlenecks or delays.
Why are vendor payments important?
Vendor payments can be time-consuming and tedious. They often involve complex calculations, manual tasks, and cross-checking amounts.
Ensuring prompt, seamless vendor payment processing is a vital part of running a successful and reliable business. Good, timely vendor payments help solidify stable relationships with your vendors and suppliers.
Conversely, prolonging the vendor payment process due to errors, inaccuracies, or even delays can negatively impact relationships with your vendors.
Good vendor payment process management also helps you avoid the risk of liabilities, late payment penalties, and interest. Moreover, fostering a strategic and reliable relationship with vendor partners helps promote business growth and brand trust.
Vendor payment process in India
In India, vendor payments are processed by the accounts payable or procurement team within a company’s finance team.
Here are the steps involved in the vendor payment process:
Step 1: Receive an invoice from the vendor
The vendor payment process begins when the purchasing company receives the invoice from their vendor or supplier for purchased goods and services.
The invoice can be shared via email, mail, or other communication channels. The invoice format can also vary and may be delivered as a PDF, document, Excel sheet, etc.
Step 2: Verify the accuracy of the vendor invoice
Next, verify and validate the accuracy of the vendor invoice, including the date of invoice issue, due date, GST and bank details, item specifications, quantities, price, approval of vendor’s authorised signatory, etc.
Before processing the payment, it is important to complete a 3-way matching of the invoice, purchase order, and goods receipt note.
Step 3: Account for the invoice and complete journal entries
After validating the invoice, it needs to be accounted for. Account for the invoice on your enterprise resource planning (ERP) software or accounting system by making a journal entry.
Step 4: Calculate and account for any taxes
Calculate and account for any applicable advances or taxes, such as TDS under income tax regulations and input tax credit (ITC) under GST.
Step 5: Deposit taxes
Deposit the TDS amount with the government within the specified deadlines as per the Income Tax Rules in the required form, as applicable.
Step 6: Reconcile data in GSTR-2A and GSTR-2B
Be sure to regularly reconcile data in GSTR-2A and GSTR-2B with your purchase register. If vendors qualify for ITC, follow up with them to upload and report their invoices in their GSTR-1. This ITC can be included in your GSTR-3B return and filed monthly or quarterly, as applicable to your business.
Step 7: Obtain approval from authorised signatory
Before the invoice’s due date, get the approval of your organisation’s authorised signatory to initiate and/or make the invoice payment.
Step 8: Reconcile vendor payment
Process the vendor payment using the mode of payment agreed upon with your vendor, such as bank transfer, UPI, cash, check, e-commerce payment gateway, e-wallet, etc.
Collect the vendor’s receipt and record the payment in the account books or accounting software upon successful payment.
Is vendor payment automation necessary?
Vendor payments can be a long, tedious process if managed manually and can be prone to human errors and potential delays. Today, many businesses have chosen to invest in good vendor payment management solutions to make vendor payments faster, more reliable, and streamlined.
Many solutions can even be integrated into your ERP to streamline business operations, provide smooth tracking of cash flows, and provide digital trails for audits.
Moreover, adopting a vendor payment management solution can also assist businesses in calculating complex tax compliances such as ITC and TDS seamlessly and error-free. It can also assist in reconciling between accounting systems and vendor payments with accounting integration, management scheduled payments, and allow for digital approval workflows.
The takeaway
Investing in a modern vendor management system helps build trust with vendors, improves operational efficiency, and strengthens your business reputation.
At Plural by Pine Labs, we specialise in customised solutions for Indian enterprises. Our platform offers real-time bulk payouts, automated processes, integrated approvals, and seamless GST payments through ICICI integration.This includes multiple user roles, real-time updates with dashboard notifications, scheduled payouts and payout links as per your business needs and even SMS notifications to payees.
Got questions? Reach out to us now!
Note: Reserve Bank of India (RBI) has granted Plural by Pine Labs an in-principle authorization to operate as a Payment Aggregator.
