Vendors, also known as suppliers, are the backbone of businesses across multiple sectors. Your network of vendors ensures that your business’ supply chain stays active, helping you build a sustainable business over time. As companies scale and the number of vendors increase it becomes a challenge to manage the accounts payable (AP) of the company’s vendors.

With the widespread adoption of digital Payment as the preferred method of transaction across businesses and sectors, the real impact of the need to standardize the payment process becomes more evident during the festive season. Adoption of an efficient solution acts as act as an asset during the exponential rise of the transaction volume during this focused time, largely due to the convenience it offers, along with added benefits in form of cashback and exclusive discounts. To put things into perspective, in terms of volume, from the day of the first Navratri on September 26 till October 23, business of more than 1.25 lakh crore has already taken place in the country, according to the Confederation of All India Traders (CAIT). The total business of Diwali sales is expected to cross 1.50 lakh crore which will be a major boon to the retail trade of India and open the playing field for effective solutions to facilitate such numbers. 

In this blog, we will backtrack and understand more about vendor payments, how it works, and the benefit of automating the process.

What are vendor payments, and who needs them?

AP is one of the most important pillars of any company’s financial management system. It represents the short-term debt owed by the business to its vendors and suppliers in exchange for products and services. Vendor payment is the process of clearing this debt by processing the payments owed to vendors and suppliers. The types of vendors can vary based on the kind of business and sector of the company.

Here are some examples: 

• A supermarket chain would purchase products from wholesale vendors. 
• A B2B business producing individual car parts would need to purchase raw materials from its suppliers. 
• A D2C pet care business will source its products from a mix of pet food producers
• Marketplaces have a wide network of eCommerce merchants who market their products on the platform
• A gig work platform may need to settle payments to a large fleet of skilled workers providing services to customers 

As we can see, almost every business has its unique network of vendors, with whom they need to build relationships and honor the payment of their debt with an efficient vendor payment process. 

Why are Vendor payments important? 

To build a sustainable and profitable business, companies not only need to expand their network of vendors, but they also need to have a plan to retain them. An important aspect of the relationship-building process is to be able to clear vendor payments in a timely and efficient manner. In earlier decades companies would require a team of accountants to manage this process efficiently through physical books, or spreadsheets.

However, in today’s times, there are additional complexities that make it impossible to sustain efficient Vendor Payments through manual efforts. Here are some of the challenges that are addressed when companies invest in state-of-the-art vendor payments automation software: 

• The number of vendors is growing exponentially, running into hundreds, thousands, lakhs, and so on. Managing them manually can result in errors, delays, duplications, and lack of compliance.  
• Vendors can be seamlessly paid in multiple currencies.
• Intuitive cash flow monitoring is required with the same vendor sells and purchases products within your ecosystem  
• Vendor payments may need to be processed from multiple verticals of the company, which brings more complexity to the process 
• Vendor payments need to be compliant with various requirements such as TDS (tax deducted at source) and GST (goods and services tax)
• The credit period can change, and various vendors may also have unique credit periods, making it difficult to keep track of and incorporate such changes manually 

How do vendor payments work? 

The vendor payments process may vary from organization to organization based on the business model and the scale of the business, but the basics remain the same. Here is the snapshot of the process of how vendors, typically get paid: 

• The vendors send their invoices to your business. If they forget to send it you may need to remind them several times. 
• Once you receive an invoice, check for the accuracy of the innvoice 
• Next, an entry must be made into your accounting system for your records. You’ll need to calculate and apply any taxes to purchase TDS for GST if required
  • Any TDS owed to the government needs to be deposited within the correct time frame.  
  • You also need to file a Form GSTR-3B to report any GST paid and discharge this liability. 
• Get an authorized signatory to approve the invoice payment on time to process the payment on the invoice due date. 
• Once the vendor payment is completed using the payment mode of choice, you must record the transaction in your accounting system, for future reference. 

How to make vendor payments seamless? 

Today, a growing number of businesses are adopting cloud-based vendor payments software solutions to address the challenges that come with scale, evolving tax regulations, and other unique vendor needs. Here’s a rundown of the potential advantages of adopting a superior tech-enabled solution to speed up and transform the vendor payments management function: 

• Whitelist and verify your vendors digitally via KYC & KYB stack. 
• Onboard new vendor bank accounts with ease and skip the cooling period 
• Facilitate instant API based payments via your preferred payment mode such as NEFT, RTGS, IMPS, or UPI
• Automate reconciliations in real-time via ledgers, to ensure there are no inconsistencies with your double or even triple entry accounting process

Long-term impact on businesses 

The impact of leveraging technology to solve the challenges that come with vendor payments is multifold. Companies are in a position to 

• Enhance the relationship with your network of vendors by ensuring timely payments
• Eliminate the instance of error by verifying and validating automated data entry
• Enhance data security of sensitive vendor information with adequate security safeguards
• Keep up with the evolving nature of tax regulations, through a dynamic compliance system   

Enable efficient vendor payments for your product 

Businesses making early investments in automated vendor payment solutions will have a competitive edge. They will be in a position to cultivate long-lasting relationships with their vendor networks and onboard new vendors with speed, thus enhancing the potential to emerge as market leaders. This is where the Decentro API stack, integrates with your existing process while allowing you to customize your vendor payment journey. Link your current accounts and simplify your entire banking experience by bringing it to one place. Decentro’s connected banking module helps with exactly that. 

If your business is seeking to optimize your vendor payments flow, read the following article, [How To Place Your Vendor Payment Process in Autopilot] to understand exactly how Decentro can empower your vendor payments, and help you get a headstart. Decentro is a one-stop platform helping businesses reduce the friction in the flow of money and financial data, via tech-enabled solutions and 24/7 support services. Drop us a line at [email protected], to start a conversation. We can help you access a customized solution to address your vendor payment challenges.

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