5 simple ways to apply vendor payment with vendor invoice

Introduction: Managing payments and invoices can be complex, but Business Central makes it easier with multiple ways to apply payments directly to invoices. Whether you're applying an advance payment, processing invoices after posting, or using the vendor card, Microsoft Dynamics 365 Business Central has got you covered!

In this post, we explore step-by-step how to apply advance payments, post invoices, and manage payments in various ways. If you are already a user, you are using one or two of these methods but knowing them all will give you extra flexibility in how you use the system and be more efficient.

Disclaimer: This post has some Indian localization related features which may not apply in localization in other countries. The BC version used at the time of this post is IN Business Central 25.4 (Platform 25.2.30548.0 + Application 25.4.29661.30648)

1. Applying advance payment with invoice

Let’s say you made an advanced payment which reflects in your vendor’s ledger and is waiting for the invoice to be posted in the future. The time arrives when the invoice needs to happen, and you know at the time of posting the invoice which payment it should be applied to. You don’t have to post the invoice and then apply payment with it. You can do it from within the invoice card.

To understand this scenario, let’s first post a payment entry to the vendor as an advance payment,

Go to ‘Bank Payment Voucher’ by typing the same in the global search bar

Fill in the necessary fields that complete a payment entry. If you have made the payment online then you just want to make vendor to bank entry.

When you click on 'Bank Payment Voucher' as shown above then you will be able to create the vendor payment entry

List of important fiends on this page

• Posting Date: Usually the date when the payment is being made
• Document Type: In case of payment (or receipt) select 'Payment'
• Document No.: From number series or manual depending on what you setup
• Account Type: In case of vendor payment, this will be 'Vendor'
• Account No.: You can select the vendor number here to which you would like to post the payment entry
• Amount: This will be the amount in the currency that you are posting the transaction in
• Bal. Account Type: If the payment is made from a Bank then select 'Bank Account' here
• Bal. Account No.: This will be the bank you select since you selected type as 'Bank Account'
• Comment/Line Narration/Voucher Narration: You have the ability to write information which you would like to use for future.

You will see that some fields are auto filled from the accounts we select in this entry. In general, you can leave them as it is.

Now, let's post this payment.

The payment is posted and now you receive the invoice from this vendor. The invoice is a different amount than the payment received (it could be the same also, but let's take a unique scenario) but you still want to apply the invoice with this payment.

Create Invoice,

Search 'Purchase Invoice' in the search bar and fill in the required details.

You click on 'New' to create a new invoice

You select the vendor and insert lines. We will not discuss invoice creation in detail and jump right into the assignment option,

Next when you click on the 'Applies-to Doc. No.' you will have the option to select the payment entry you would like to apply with this invoice.

After selecting the entry, you can go ahead ad post the entry. But let's check the 'Preview Posting' of this entry to check what it looks like,

Let's check the 'Detailed Vendor Ledg. Entry'

Here we can see that the application to the advance payment has been done. You can now go ahead and post tne purchase invoice.

2. Apply after both the entries are posted

You may post invoice first and payment second and vice versa, and you do not have to apply them with each other at the time of entry.

To apply invoice and payment after posting, go to vendor ledger.

Search 'Vendors' in the search bar and find the vendor you want to check ledger for

Open the vendor card from the list,

Once you click on the vendor no., the vendor card opens

Now, let's click on 'Ledger Entries' and reach to the list

The 'Remaining Amount' shows the entries that are yet to be applied. You can select one and click on 'Apply Entries' option as shown below,

The application page will allow you to select the entry you would like to apply with by selecting the entry and click on 'Set Applies-to ID'. In below example, when clicked on Set Applies-to ID, it generated user's name as the applies to ID.

Now you can go ahead and post the application. You will see a pop up window as shown below. The 'External Document No.' can be used to enter any reference number for this application entry.

Once we click 'Ok' to this screen, we can see the confirmation that application has been posted.

The 'Remaining Amount' field shows the application has been done. Please note that you can always 'Unapply' an entry if you posted it by mistake or want to change it in the future. The option is as highlighted in the below screenshot.

3. Apply invoice when posting payment on journal

Usually the invoices are posted first and payments are received after. You can go to 'Bank Payment Voucher' to post a payment entry and apply it with invoice before posting.

Create payment entry and click on 'Apply Entries' option. You can enter the amount or leave it blank. If you leave it blank you can expect to have the invoice amount filled in the amount field once you select the invoice for application.

Let's say we select one invoice and click 'Set Applies-to ID' option. In this case, we don't have to post application. Just click 'Ok'.

Here we have chosen to let system automatically give us the amount based on the invoice and not entered any amount. The application brings the value to the 'Amount' field.

The preview posting shows how the entries got applied and we can proceed with posting.

4. Payment from vendor card with application

The latest and probably the most convenient method is making payment from vendor card.

Reach the vendor card and find the option called 'Pay Vendor'

It will show open invoices and you can click on 'Create Payment' option to make the payment.

You will see this window that helps select the batch, posting date, document number and bank account.

When you hit 'Ok', you will find that the entry has been applied and is ready to be posted.

You click 'Post' to post the applied entry

You will find that the entry has been posted.

5. Payment from vendor ledger

Let's say the vendor is calling you regarding their specific invoice which they want you to clear. You check their ledger and find the invoice and check necessary details and decide to make payment immediately.

You can click on 'Create Payment' option, and you will find the pop up to verify or update following info,

Once you fill in the necessary details, click 'Ok'

You will be taken to the payment journal where you can complete the payment entry.

Post the payment and it will be already applied to the invoice you had selected.

Conclusion

Business Central offers multiple ways to apply payment with the invoice. Users can use one or multiple based on their business scenario. This same functionality works for customer as well when the receipt is posted and requires to be applied with the invoice.