Accounting Concepts

Accounts payable: managing suppliers and paying on time

2 min read Updated 03 Oct 2026 1 views

AI summary

How to track what you owe, pay suppliers on time, and avoid the tax traps of late payment to MSMEs and the 180-day GST rule.

8 sections 6 steps

Key facts

Accounts payable (sundry creditors) is the amount you owe suppliers for goods and services received on credit.
Late payment can cost you tax: payments to micro and small enterprises beyond 45 days (with a written agreement; 15 days without one) are not deductible for income tax until paid (old section 43B(h)).
Under GST, if you do not pay a supplier within 180 days of the invoice date, you must reverse the input tax credit with interest, and reclaim it once you pay (Rule 37).
A creditor balance that is never paid may be taxed as income when it is written back.

A simple monthly routine

Book bills promptly, with the supplier's invoice date and due date.
Match each bill to the purchase order and goods receipt before approving it.
Run payables ageing: 0–30, 31–45, 46–90, 91–180, above 180 days.
Flag MSME suppliers (ask for their Udyam number) and pay them within 45 days.
Get supplier statements every quarter and reconcile differences.
Deduct TDS where applicable before paying (contract, professional fees, rent, purchase of goods above ₹50 lakh).

Entries

Event	Entry
Bill received	Purchase / Expense A/c Dr, Input GST Dr, To Supplier A/c
TDS deducted	Supplier A/c Dr, To TDS Payable A/c
Payment	Supplier A/c Dr, To Bank A/c
ITC reversed after 180 days	Supplier-related ITC reversal: Expense or ITC Reversal A/c Dr, To Input GST A/c

Common questions

What happens if I pay an MSME supplier late?

The expense is not allowed in the year of purchase if still unpaid beyond the time limit at year end. It is allowed in the year you actually pay. You also owe the supplier compound interest at three times the RBI bank rate under the MSMED Act, and that interest is never tax-deductible.

Does the 180-day rule apply to all purchases?

It applies to purchases where you claimed ITC, except supplies under reverse charge and some deemed supplies without consideration. Pay within 180 days or reverse the ITC in your GSTR-3B.

What is a debit balance in a creditor's account?

It usually means an advance paid or a payment made twice. Check before year end and show advances separately in the balance sheet.

Sources

Law as of October 2026. Verify against the latest notifications before relying on it for filings.

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