The Indian vendor payment industry is witnessing a gigantic transformation.
Businesses are moving from paper-based invoicing to end-to-end automation of the vendor payment process.
However, a lot of market players are still struggling in this transition. In fact, 33% of SMEs report delayed vendor payment processing.
Knowing this, we couldn’t help but publish a guide on this.
(Psss.. how about testing your knowledge before moving ahead with the blog!)
So, in this post, we will be uncovering the answers to a lot of pressing questions.
- How do vendor payments work?
- Who requires vendor payment solutions?
- What are the prevalent issues in vendor payment?
- How to streamline the process with automation?
Needless to say, we have a long ride (or read) ahead of us.
So, here we go!
Vendor Payment Meaning
Starting from the basics can never hurt.
So, what is vendor payment?
Vendors are the parties that contribute goods or services in a supply chain. Generally, these “sellers” supply the stock or inventory that is consumed by the end-user.
For instance, Amazon is a marketplace that allows numerous vendors to sell their products on its platform.
Now, the vendor payment process is all about splitting the commissions automatically between different vendors and the marketplace itself.
The right vendor payment platform will allow you to integrate the payment gateway and split payment platform.
This way, you can collect customer payments and split vendor commissions simultaneously. It will adjust and settle these payments according to your preference as well.
This allows you to:
- Focus on growing your marketplace instead of the vendor payments
- Automate payments and payouts
- Customize commission logic
- Settle payments according to your preference
We will be covering this in detail.
But first, let’s have a look at some examples of entities that need vendor payment solutions.
Who Requires Vendor Payment Services?
Here’s the short answer: almost every business.
But we have a feeling you’re looking for something more detailed.
Well, we came prepared.
Here are some examples of market players that require vendor payment solutions.
It is important to note that this is not an exhaustive list. However, it is enough to cover the major aspects of the question.
Marketplaces like Amazon
First up, we have the most obvious use case: marketplaces.
As you’d expect, Amazon is a prime example here. 56% of paid units on Amazon sold by a third-party seller in the second quarter of 2021.
As a marketplace, Amazon would need to:
- Split the commission of every sale between vendors
- Manage customer refunds with vendors
- Automate the process
- Have access to an integrated payment system with reporting mechanism
…and a lot more.
Over The Top Media Platforms like Netflix
Over-the-top or OTT platforms like Netflix acquire and license content sourced from the original production house.
These licenses are available for a specific period of time and at a fixed fee. Thereafter, Netflix offers unlimited viewing to their end customers.
Now, these production houses can be considered ‘vendors’ in this scenario.
Netflix has to pay a certain sum to the respective production house every time an end-user watches that content. This concept is called CPV (Clicks Per View).
In such a scenario, a vendor payment platform can facilitate these recurring payouts.
Multi-Branch Outlets and Franchises like Pizza Hut
Most franchise businesses require central payment collection.
Hence, their payment solution should be able to:
- Collect payments from all these branches
- Distribute the commissions to the vendors automatically
Here, we can take the example of a multi-branch player like Pizza Hut. It needs to route the incoming payments to the respective individual stores.
P.S. Franchises like Pizza Hut also need to pay their delivery partners. This bulk payment is done on the basis of units delivered. Moreover, the partners need to be able to withdraw their earnings at their convenience.
Here a solution like Cashfree Payouts might help.
Edtech Platforms like BYJU’s
Online edtech platforms like BYJU’s are seeing a cataclysmic user response. Especially since the pandemic.
In fact, in 2020, BYJU’s had a total of 57 million users. Upgrad, on the other hand, Vedantu and Unacademy had around 25 million users each.
Needless to say, the growth of these edtech platforms is directly proportional to their vendor satisfaction.
In this case, BYJU’s needs to split the student fees between the instructors and their platform. What’s more, they need to apply the pre-decided commission in each instance.
Healthtech Businesses like Cure.Fit
Cure.Fit is a fitness and nutrition coaching platform. They offer offline and online fitness services to customers across India.
Now, in their case, a vendor could be:
- The Yoga, Dance Instructors
- Nutritionists and healthcare professionals
- Gym and coaching centres affiliated with them
- Members associated with cloud kitchen business
A health tech player needs to ensure partner satisfaction with hassle-free payment processing.
We hope that this helped you understand vendor payments.
However, this begs another (equally important) question.
How Does Vendor Payment Work? : A Step by Step Guide
The vendor payment process differs between various payment service providers (PSP).
However, the overall process may go something like this:
- Customer or user places an order on the platform.
- Business adds a vendor commission on the PSP like Cashfree Payments.
- The PSP computed the amount to be paid to each vendor.
- Business can verify any debits and credits on the vendor payment portal.
Want to dig in a little deeper?
Well, in that case, vendor payment can be divided into 5 main stages.
- Adding Vendor to your payment platform
- Adding vendor commission details
- Initiating customer refunds with vendors (if applicable)
- Settling payouts with vendors
- Verifying transaction through Reports
Now that we have that covered, let move on to the detailed step-by-step guide.
Adding a Vendor on Payment Platform
The first step in initiating vendor payments is adding the vendor details.
Here you have three options:
- Use APIs to add vendor details to your Vendor payment system.
- You can manually add any vendor directly from the dashboard.
- Either upload a single file that includes all the vendors. Here, you have to follow the format suggested and include contact and settlement details therein.
Let us take you through the steps of the latter two.
Manually Adding Vendors
Here are the steps to add a vendor from the dashboard.
- Head over to the Payment Gateway Dashboard and click on Easy Split.
- Select the Vendor tab and click on Add New Vendor.
- Input the Vendor ID, Email ID, and Phone Number. The Vendor ID is a unique number assigned to each of your vendors. It helps in identifying and processing payments to the vendor.
- Next, enter the vendor payment details like Account Number, Account Holder Name and IFSC code. Alternatively, you can add the UPI VPA of the vendor. This information will help the payment system process payouts directly with that bank account.
- Thereafter, you have to choose the preferred Settlement Cycle for the vendor.
This will determine when the PSP will disburse the payout to the vendor’s account once the customer funds are captured.
- Finally, click on Add Vendor. Once the vendor payment details are added, you can choose to edit or delete them.
All the vendors will be visible on the Easy Split – Vendor dashboard.
Uploading Vendors in Batches
The next option is to add a large number of vendors altogether.
You can choose to download a sample file to check what details are needed in the batch file.
Thereafter, follow these simple steps:
- Click on Payment Gateway Dashboard and the on EasySplit – Vendor.
- Next, click on Upload File and choose your preferred file.
- In case you need to make changes, you will need to upload the file again. With Cashfree Payments, you can include 50 vendors in a single file.
- After successful upload, head to the Easy Split – Vendor dashboard. All the vendors’ details will be visible there.
Once you have added the vendors, you can move on to the next step.
Splitting Payments Between Vendors
Before we understand how to split vendor payments, let’s understand what it means.
Let’s say that a customer orders 3 items from XYZ, an eCommerce marketplace. Now, these items are from 4 different vendors and this is how much their product costs:
- Seller A Amount- INR 760 (XYZ’s commission amount INR 40)
- Seller B Amount- INR 380 (XYZ’s commission amount INR. 20)
- Seller C Amount- INR 380 (XYZ’s commission amount INR 120)
- On top of that, the delivery service is INR 100.
Now, XYZ needs to split the commissions between these stakeholders. So they can either specify:
- The amount of commission
- The commission percentage
The PSP will transfer the amount to the parties after receiving the customer’s payment of Rs 2000.
Thereafter, the balance amount will be transferred to XYZ after deducting the PSP’s charges.
Now, what are the steps XYZ can take to initiate split payments?
How To Initiate Split Vendor Payment?
Most PSP or payment gateways (PG) have separate integrations that allow the payment split feature.
For instance, Cashfree Payments offers these integration methods that include the payment splits parameter
- Seamless Pro
- Mobile SDK
Once, the PG integration is successful, follow the following steps:
- Specify the split percentage of value (INR) of the order amount.
With Cashfree Payments, you can disburse the commission through net banking, cards, UPI, and all major wallets.
- Pass the paymentSplits parameter while submitting the order details
- Pass the Vendor ID with the split amount/percentage with every order.
Alternatively, you might want to initiate split vendor commissions for Mobile SDKs.
Here, you can send the paymentSplits value as a part of the input parameters while invoking the SDK function.
Well splitting the vendor commission is one thing.
However, processing vendor refunds is a whole new ball game!
Processing Customer Refunds in Vendor Payment
To initiate refunds to your customers, you would need to recover the order amount from vendors.
But what if we tell you that you can initiate customer refunds with one single click?
Let’s build on that.
What if we tell you that the entire process can be automated?
It will make your vendor payments so much easier, right? Well, good thing is that it’s possible.
With PSPs like Cashfree Payments, you can initiate customer refunds through:
It goes something like this for the former.
Using Vendor Payment Portal/ Dashboard For Initiating Refunds
- Head to Payment Gateway Dashboard and click on Transactions.
- Next, click on Payments and select the transaction which you want to refund.
- Now, have a look at all the details regarding that particular transaction. For instance, details like:
A) Payment particulars
B) Customer order
C) Split amount
D) Vendor ID and name
- Then, click on Refund.
- Now, select the Split Refund option.
- Thereafter, specify the amount that you want to refund from each vendor.
- Click OK to initiate the refund.
P.S. If you’ve deleted the vendor, you will not be able to debit them for the refund.
Using APIs For Initiating Refunds
This manual refund process is user-friendly. However, it is not feasible for bulk refunds. Especially if you are a medium or large enterprise.
Here, using APIs to initiate refunds can be helpful.
Till now, we have discussed how you can add vendors, initiate payments and refunds.
But how can you keep track of all these transactions?
Reconciling Your Vendor Payment
Reconciling your payment can be quite a hassle.
However, the right PSP may just make it a walk in the park.
Let’s check how you can keep track of all your vendor details, payments, and refunds.
First and foremost, let’s pick up where we left off.
Checking Refund Status and Vendor Split Information
Follow these steps to check your refund status and vendor split information:
- Head to the Payment Gateway Dashboard
- Click on the Transaction you want to reconcile.
Checking Vendor Settlements
Like we mentioned before, you can customize the settlement cycle for your vendors. This can be specified while adding the vendors.
To have a look at the settlements from each vendor, follow these steps:
- Head to the Payment Gateway Dashboard.
- Click on Settlements and then on Vendor.
- Click on the download button for the settlement report associated with the vendor. This report will contain all the transactions associated with a settlement including any refunds or adjustments.
Furthermore, you can also use APIs to view the vendor settlements.
Verifying Vendor Summary Report
Now, you may want to download the vendor summary report for a custom date range.
This report will give you access to vendor payment details like total transaction amount, adjustment amount, settlement and settled amount.
To download the vendor summary report:
- Head to the Payment Gateway Dashboard and click on Reports.
- Select Vendor Settlements.
- Also, select Vendor Settlement in the Report Type field
- Specify the date range
- Click on Generate Report
Checking Transaction Summary Report
You may want to check individual transactions during a time period. For this, you can access the Transaction Summary Report.
This report will give you an insight into:
- Transaction amount
- Transaction status
- Payment method,
- Customer details
- Settlement amount
To generate this report, follow these steps:
- Click on Payment Gateway Dashboard and head to Reports
- Select Transactions in the Report Type field
- Select your preferred date range
- Click on Generate Report
- Download the report if needed
This section gave you all the information on how vendor payment works.
Seems like most businesses would want to automate their vendor payments, right?
Well, unfortunately, the reality is quite different.
Vendor Payment Issues and Automation Solutions
Let us give you some context.
- 36% of invoices received by businesses are paper-based
- 66% of businesses still do manual reconciliation of vendor payments
- 77% of SMEs are dissatisfied with the slow payments of their vendor dues
This begs the question.
What are the other issues by businesses while processing vendor payments? And most importantly, can automation solve it?
Let’s discuss these issues one by one.
Inaccuracies Due To Manual Vendor Payments
A common myth is that the Accounts Payable (AP) is only limited to payment processing.
Honestly? That couldn’t be further from the truth.
The AP team is in charge of:
- Onboarding the vendors
- Resolving supplier management issues
- Payment reconciliation
- Invoice processing
- Creating separate payment files for online payments, checks, international wires, etc.
This results in an overworked AP team in the case of most organizations.
Thankfully, vendor payment automation can solve most of these issues.
Vendor payments platforms can automate vendor onboarding through:
- Bank account and UPI ID verification
- PAN card verification API
Moreover, payments reconciliation and supplier management become a breeze with:
- User-friendly vendor payment portal
- Easily generated and downloadable reports
Interestingly, automating these processes can actually make the AP team more effective. Moreover, the organization’s need to hire more resources may decrease.
However, there’s a catch. A lot of businesses have automated account payable processes in silos.
For instance, they might have automated invoice processing. However, vendor onboarding, verification and reconciliation may still be manual.
Speaking of inefficient processes, let’s have a look at the biggest obstacle to vendor payment automation.
Dependencies on Paper Invoices
Here are some statistics to start us off:
- 47% of vendors receive late payments for their products or services. (Deloitte, 2019)
- 35% of enterprises claim high payment processing costs with traditional payment methods
Now, here is another stat:
- 80% of SME vendor payments are paid by cheque. The same goes for 40% of all B2B payments.
Seeing a pattern between these stats?
Let us lay it out in simple terms.
Manual payment processing is ridden with inaccuracies and poor vendor relationships.
However, vendor payment automation can help drastically.
For starters, it can:
- Facilitate quicker approval process
- Eradicate manual data entry and routing of invoices
- Provide improved visibility of unpaid liabilities
- Flag out manual errors of computing
- Fastrack the vendor payment process
Payment Lags Affecting Vendor Loyalties
By now, one thing must have become clear.
An inefficient vendor payment process is bound to hinder vendor loyalty.
Now, even more so. After all, the world is moving towards a freelance and gig economy.
What’s more, 74% of global gig workers would consider leaving a project in case of late payments.
However, automating vendor payments may show the way. Try to choose a PSP that:
- Provides diverse payment modes like UPI, net banking, Cards, wallets, etc.
- Helps avoid late payments
- Customizes your vendor settlement cycle
End-to-end automation helps the vendors manage their cash flow. Needless to say, this benefits the vendor and the business in the long term.
If you’ve come this far, it’s only fair to go one step further.
The upcoming section is pretty much a culmination of all we discussed in our guide till now.
Finally, we will be discussing how you can choose a vendor payment system in India.
Cashfree Payments: Best Vendor Payment System in India
Till now, we have witnessed that most vendor payment processes can be automated.
However, it is equally important to choose the right vendor payment system as well. After all, your vendor payment process is only as good as your system.
Cashfree Payments will provide you with end-to-end automation to simplify your AP processes.
Let’s take a deeper dive into some of the features.
Simplified Vendor Payment Management
Cashfree Payments will help you provide a seamless experience to your vendors. It provides 100% online onboarding and KYC processes.
As mentioned before, it will also help you determine vendor commissions through the dashboard. You can use APIs to onboard and verify the vendor details as well.
For instance, you can verify their PAN details, bank account, and UPI ID details.
Furthermore, you can customize the settlement cycle to these vendors without hassle.
Looking to automate vendor payments but fearing the integration process?
Let Cashfree Payments help you out.
Cashfree Payments lets you integrate your website or mobile app within a matter of days. Moreover, they provide plugins for eCommerce platforms like Magento, Woocommerce, Shopify, etc.
You can easily collect payments and disburse the payouts to the vendors by including the paymentSplits parameter.
Flexible Settlements to Vendors
We have mentioned that you can customize the commission details and settlement cycles as per your preference.
Now, you can choose the settlement processing via bank account or UPI. In fact, Cashfree Payment’s Easy Split is the first solution in the market to support UPI settlement.
Most importantly, you can also settle vendor dues instantly after payment capture.
User-Friendly Vendor Payment Reconciliation
Cashfree Payments lets you reconcile all vendor transactions, refunds, and settlements. You can choose to do this through APIs or directly through the dashboard.
Moreover, the dashboard will show the real-time status of all transactions using webhooks. The vendor payment system will automatically adjust refunds after the vendor settlements.
Cashfree Payments’ reporting feature will help you stay on top of all your business finances!