The vendor payments industry in India is undergoing a massive shift. Invoicing on paper is being replaced by complete vendor payment automation in business. Many market participants, meanwhile, are still having trouble with this change. SMEs are reporting slow vendor payment processing. In light of this, we have created a guide to help you understand everything from the basics.
We’ll be finding out the answers to several important concerns in this post.
- Who is a Vendor?
- What is a Vendor Payment?
- Vendor Payment Procedure
- Vendor Payment Issues
Who is a Vendor?
Vendor Meaning: Anyone who buys and sells goods or services is referred to as a vendor. A vendor buys goods and services to resell them to another business or person. Large retailers depend on a variety of suppliers to provide the goods they buy at wholesale costs and resell at higher retail prices.
For example, the e-commerce industry is a marketplace that provides a platform for a large number of vendors to sell their goods.
What is a Vendor Payment?
Vendor payments commonly referred to as accounts payable or invoice to pay, refer to the procedure of compensating suppliers for the goods or services they provide to your business.
Maintaining a good relationship with your suppliers while making sure you don’t have responsibilities for an extended time is possible by managing your vendor payments in a methodical and timely manner. This keeps your business running as efficiently as possible.
Vendor payment portal administration becomes crucial if your business engages in any of the following transactions or services:
- Various currencies are used to pay suppliers.
- A lot of merchants need to be coordinated.
- If your business alters the length of credit durations to maintain consistency.
- If payments are made from several branches and divisions, making cash flow monitoring is necessary.
- If the balancing of obligations is necessary due to the sale and acquisition of items from the same vendor.
- To adhere to the MSME Act’s and the GST’s regulations, timely payments are required.
Vendor Payment Procedure
Vendor payments may be handled by a huge staff in a large organisation. While some people handle medium-sized firms. The procedures that must be finished for a vendor to get paid are as follows:
Step 1: The first step is to obtain the invoice from the vendor or supplier if it hasn’t already been done so.
Step 2: To properly account for the invoice, make the necessary journal entry in the ERP or accounting system. Understand, compute, and keep track of any taxes that may be due, such as TDS (Tax Deducted at Source) under the income tax law and any ITC (input tax credit), if any, under the GST law.
Step 3: If the government is owed TDS, it must be deposited by the dates specified in the Income Tax Rules. Depending on the circumstance, including any such ITC on the GSTR-3B form that is reported on a monthly or quarterly basis.
Step 4: Obtain the authorised signatory’s permission before beginning the invoice payment, ideally on or before the invoice due date.
Step 5: Pay the vendor using a payment voucher as proof, deduct the TDS that was applied, and record the transaction in the accounts’ books. Any of the following may be used as the payment method: UPI, bank transfers, e-wallets, and mobile payments.
It is crucial to remember that you can use a cloud-based vendor payment software system, which is frequently connected with your ERP system, to automate some of the tasks outlined above.
Vendor Payment Issues
The operation of accounts payable must be efficient and unhindered. If not, the following issues could occur:
1. Manual data entry
Manual data entering has a very high chance of error. Miscalculation and payment-related errors are frequent and unavoidable, particularly when several vendors have several invoices. Mistakes are frequent since the data is input into a spreadsheet.
2. Control over vendor invoices
When dealing with a lot of vendor bills, it can be difficult to keep track of them and when they are due. When you miss any of the due dates, it could all seem a little too daunting. As a result, interest fees or other penalties for late payments are assessed, which could have been prevented. Additionally, inefficient invoice administration harms the relationships with vendors.
3. Incomplete purchase orders
Businesses frequently abandon manual purchase orders because they are time-consuming and inefficient. This makes it challenging to follow the requested goods. Additionally, it causes price changes, particularly in the buying price.
For all bills that are to be paid, the firm must make sure that TDS is taken out. The TDS return must be submitted once the TDS has been taken, and the TDS payment must be made on the approved portal. The business frequently runs the risk of selecting the wrong TDS rates and paying erroneous amounts of TDS as a result of the error-prone manual system.
5. Processing is ineffective and slow
Manual systems significantly slow down the payment process, especially in a company where three to five employees must approve each payment. Due to the severe delays, this causes in the payment process, late payment penalties and fees may be assessed.
6. Lack of spreadsheet security
Only when there are few bills and vendors may record be maintained on a spreadsheet effectively. An organisation with a lot of bills and vendors cannot implement it. Furthermore, the security measures are inadequate even though the spreadsheets contain important data. The stored data is simple to edit and can be altered without authorization.
The system needs to support process automation and keep track of audit trails. If you have a large budget, consider integrated solutions. There won’t be any duplicate invoices or payment entries thanks to the integration process.
This improvement has made tax and vendor administration simpler and more error-free. If you are a manager or senior employee, you will notably notice a considerable improvement in the team’s productivity and efficiency once the vendor payment system is in place.
Maintain and update the master data for suppliers, which includes their tax IDs, banking details for payments, contact details, and credit terms. The majority of the procedures involved in the vendor payment process can be automated.
1. What is the meaning of a Vendor?
Ans: Vendors refer to people who buy and sell goods or services. The goods that large retailers resell at higher retail prices are bought at wholesale costs from a variety of vendors.
2. What is Vendor Payment?
Ans: Vendor payments commonly referred to as accounts payable or invoice to pay, refer to the procedure of compensating suppliers for the goods or services they provide to your business.
3. What is vendor reconciliation?
Ans: The act of comparing a vendor’s accounts payable with the seller’s statement is known as vendor reconciliation. It ensures there are no discrepancies or mistakes between the price a vendor bills an entity and the goods or services that the entity receives from the vendor.
4. What are the Vendor Payment issues?
Ans: Some vendor payment issues include manual data entry, the processing is ineffective and slow, lack of data spreadsheet security etc.