How to pay suppliers

Pay only bills that have been checked and approved. Our guide to managing accounts payable covers matching bills to orders and deliveries, approving them and planning payment runs. This guide picks up at the point of paying.

Check how the supplier wants to be paid. Its bills or agreement usually say which methods it accepts and where to send remittance details. business.gov.au lists paying your accounts on time among the ways to keep a good working relationship with suppliers.

business.gov.au favours internet banking for paying bills: you can pay at any hour, every transaction shows on the account, and direct debits or automatic payments for recurring bills leave less room for error. It notes that cheques are now rare, need more handling and can attract fees, and that cash carries a higher risk of theft and mistakes.

1. Pay to a stored payee whose bank details were confirmed with the supplier when they were first set up, rather than typing details from the bill each time.
2. Check the amount against the approved bill, less any credit note you are applying.
3. Put the supplier's bill number in the payment reference, so they can match it.
4. Where more than one person handles money, have a second person authorise the payment in internet banking.
5. Keep the payment confirmation with the bill.
6. Send a remittance advice if the payment covers more than one bill or is not for the full amount.

In the books, record the single transfer against both bills and apply the credit note, so the supplier's balance drops to nil for those documents. The supplier gets the same breakdown from the remittance, so neither side is left guessing.

With a direct debit, you sign an authority and the supplier draws the money from your account. business.gov.au explains that the payer fills out a direct debit form giving its BSB and account number. Because the supplier starts each payment, the checking shifts to afterwards:

• Enter the bill before the debit date, so the debit has a bill to match.
• Check each debit on the bank statement against its bill, and query any difference with the supplier straight away.
• Keep a list of every direct debit authority you have signed, with the supplier and what it covers.
• When you stop using a supplier, cancel the authority and confirm the cancellation in writing.

business.gov.au describes paying by credit card as creating a debt with the card provider. The supplier is paid, but the business now owes the card provider instead. In the books, record the bill as paid from the credit card account, not from the bank, and then record the card repayment as a transfer from the bank to the card account.

Keep the supplier's receipt or paid bill with the card statement. Each charge then has a document behind it when you reconcile the card.

A cheque is recorded when you write it, but it leaves the bank only when the supplier banks it and it clears. business.gov.au notes that cheques take about 3 business days to clear. Until then, the cheque shows as an unpresented payment in your bank reconciliation, and a cheque that stays unpresented for a long time is worth asking the supplier about.

Paying a supplier in cash leaves no bank record at all, so the receipt is the only evidence. Get a receipt every time, and pay small amounts from petty cash rather than from takings. Among its record-keeping tips, the ATO stresses accurate records of cash payments as well as electronic ones.

Some suppliers ask for a deposit before they start work or place an order. Keep track of the deposit against that supplier, so it can be matched to the bill when the bill arrives and only the balance is paid. How a deposit is treated in your accounts is a question for your accountant.

If you agree to pay a bill in parts, record each payment against the bill, so the amount still owing stays visible until the last part is paid.

File the payment confirmation, remittance advice, card receipt or cheque butt with the bill it paid. For a company, the Corporations Act's definition of financial records includes invoices, receipts, orders for the payment of money and cheques. business.gov.au says most business records need to be kept for 5 years, and company records for 7 years.

Whoever makes the payments, the ATO says the business owner keeps primary accountability for record keeping. A short monthly look at what was paid, to whom and on whose approval is a simple way to keep track.