Everything you need to know about vendor payment

03 January, 2023

​​​​​​​As a business owner, you need to take several steps to ensure your business runs smoothly. You need to handle the operations, manage your vendors and customers, and ensure all payments are sent and received on time. Whether you own a Micro, Small and Medium Enterprise (MSME) or a fully-scaled business, you must pay your vendors on time for the goods and services utilised. It is imperative to understand the vendor payment process and work towards better ways to manage the same.

What is vendor payment?

Vendor payment can be defined as the final step in the procure-to-pay cycle of any organisation. It is essentially the act of paying external suppliers or vendors to purchase goods, services, or both. As a business owner, you need to set up a process and system that works for your business and your vendors.

Managing vendor payments is crucial as it can make or break a stable professional relationship with suppliers. Such management comprises clearing vendor invoices on or before the date-agreed-upon per the vendor management contract. By clearing timely vendor payments, you would be complying with GST laws and MSME vendor payment rules while enabling your business to grow in the long run.

The vendor payments process

While a small group of employees usually handle payments to MSME vendors, large entities rely on dedicated accounts teams for the same. Regardless, the process is conducted by following the steps given below:

1. Collect the invoice from the vendor/supplier if they have not already sent it.
   
   

2. Check the invoice for completion and accuracy. Also, look for the approval of the vendor’s authorised signatory.
   
   

3. Account for the invoice on the accounting system and calculate the applicable taxes TDS (Tax Deducted at Source), for instance. Also, Input Tax Credit (ITC) under Goods and Services Tax (GST), wherever applicable.
   
   

4. Deposit TDS as per the due dates in the prescribed form mentioned in the Income Tax Rules. Conduct GSTR-2A and GSTR-2B reconciliation with the purchase register regularly. If vendors have not uploaded their invoices, urge them to do so and report them under GSTR-1. Report ITC in the GSTR-3B return filed, monthly or quarterly, as applicable.
   
   

5. Get approval from your business' authorised signatory on or before the appointed day of the invoice to make the payment.
   
   

6. Make the vendor payment with the net of the TDS deducted and record the same in your account books using a payment voucher. Use the mode agreed upon beforehand, whether it is UPI, bank transfer, payment gateways, etc., to make the payment.
   
   

7. Collect the receipt from the supplier/vendor and record it in your account books.
   
   

How to manage vendor payments?

To manage payments to MSME vendors, you can rely on traditional methods like spreadsheets or opt for modern digital means. Tech-based solutions can help you manage your payments in the following ways:

• Automated approvals within quick timeframes
  
  

• Audit-ready data collated via a digital trail
  
  

• Simplified bill payments without depending upon manual intervention
  
  

• Smooth track of cash flow within the organisation
  
  

To better manage your company's vendor payments, study the current process and look for blind spots, time taken, and costs incurred. Once you have done this, it becomes easier to switch to a digital model that allows you to scale your business and improve your team's productivity. Finally, you must ensure you have an efficient, streamlined system in place to manage your payments due to your vendors.

MSME solutions at HDFC Bank

If you need financial assistance to meet your varied business requirements, you can rely on the products and services offered by HDFC Bank. HDFC Bank provides Business Loan for MSMEs/SMEs and Working Capital Loan to help you manage cash flows and keep your business running seamlessly. You can also benefit from Bill Discounting offered at HDFC Bank to ensure your business relationships continue to be healthy!

Eager to explore more about the various products and services at HDFC Bank that can benefit your enterprise? You can check out the MyBusiness page here.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.