Everything you need to know about 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 must set up a process and system that works for your business and 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 agreed-upon date per the vendor management contract. By clearing timely vendor payments, you would comply with GST laws and MSME vendor payment rules while enabling your business to grow in the long run.

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:

• Step 1: Collect the invoice from the vendor/supplier if they have not already sent it.
• Step 2: Check the invoice for completion and accuracy. Also, look for the approval of the vendor's authorised signatory.
• Step 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.
• Step 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.
• Step 5: Get approval from your business' authorised signatory on or before the appointed day of the invoice to make the payment.
• Step 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 UPI, bank transfer, payment gateways, etc., to make the payment.
• Step 7: Collect the receipt from the supplier/vendor and record it in your account books.

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, switching to a digital model that allows you to scale your business and improve your team's productivity becomes easier. Finally, you must ensure you have an efficient, streamlined system to manage your payments due to your vendors.

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 Loans for MSMEs/SMEs and Working Capital Loans 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 remain 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.