Vendor Payments: Invoice vs Contract? Vendor Payments Decoded

Key takeaways

Why banks ask for documents: the compliance framework behind vendor payments

Under FEMA and RBI oversight, authorized dealer banks must verify that every outward remittance is legitimate. Compliance teams validate four pillars before releasing funds: purpose validity, party authenticity, transaction genuineness, and AML or KYC compliance. If you send only a vague invoice with mismatched names or no scope, the transfer gets flagged, and the back and forth begins.

Bottom line: The clearer your evidence of what you bought, from whom, and why it fits a permitted purpose, the faster your vendor gets paid.

Definitions: invoice proof, agreement, and vendor payments

Invoice proof is a formal payment request that identifies seller and buyer, describes what was delivered, lists unit rates and totals, states currency and dates, and shows the seller’s bank details. Proforma invoices are valid for advances, final tax invoices for post delivery payments, PDFs from your accounting tool, or portal receipts all qualify if they are specific.

Agreement covers signed contracts, statements of work, purchase orders, acceptance of terms of service, or compiled email threads that confirm scope and terms. For SaaS, clickwrap works when paired with an order confirmation that references the terms URL and plan.

Vendor payments are outward remittances for services, goods, licenses, or subscriptions. Classification, service versus goods, recurring versus one time, influences which documents your bank prioritizes.

Invoice vs contract for vendor payments: when each document is sufficient

When an invoice alone usually suffices

• One off, post service invoices: The deliverable already exists, the invoice describes it specifically, for example, “Custom website redesign, 3 pages, responsive layout, 10 revisions included.”
• Low to medium values: Under USD 10,000 with clean data and a matching purpose code typically clears quickly.
• SaaS renewals or subscriptions: Invoice plus a quick screenshot of the plan or service page often does it, the invoice should show the plan and billing period.
• Repeat vendors: Prior successful transfers shorten review for similar new invoices.

Red flags to avoid: round number totals without itemization, missing vendor address, no invoice date, name mismatches between invoice and beneficiary.

When banks ask for an agreement as well

• Advances or retainers: Pair a proforma invoice with a statement of work or contract that explains milestones and payment schedule.
• Milestone or long duration engagements: A master services agreement gives compliance the context they need.
• IP, licensing, or royalty like payments: Provide license terms or vendor terms of service that explain permitted use and fees.
• High value transfers: Above USD 50,000, a signed agreement reduces ambiguity.
• Paying individuals: A contract or email agreement reassures the bank the transaction is commercial and genuine.
• Missing bank details on invoice: Add a bank details confirmation or include them in the agreement to verify the beneficiary.

Documents for outward remittance: complete checklist

• KYC and identity: PAN, address proof for individuals, business PAN and registration for entities.
• Form A2 and purpose code: Choose the correct code, for example P0801 consulting, P0802 IT services, P0810 professional services, P0820 licenses or subscriptions.
• Invoice proof: Clear description tied to the purpose code, currency, unit rate, totals, dates, and seller bank details, IBAN, SWIFT, bank address.
• Agreement or contract: Signed contract, SOW, PO, or compiled email thread, and for clickwrap, add order confirmation referencing the terms URL.
• Vendor bank details verification: Beneficiary name, account number, IBAN, SWIFT or BIC, bank address, consistent with the invoice.
• Tax forms if applicable: 15CA or 15CB based on your CA’s guidance and bank thresholds.
• For goods: Bill of Entry, shipping bill, import license if relevant.
• For subscriptions: Invoice plus plan or pricing page screenshot, and terms link if requested.
• Any compliance declarations: FEMA declaration, TCS proof, or “not for prohibited use” confirmations, when asked.

Pro tip: Package everything as one PDF where practical, invoice first, agreement second, bank details third. This minimizes follow ups.

How to create a bank ready invoice proof

• Exact legal names and addresses for seller and buyer, matching bank records and Form A2.
• Tax IDs: Seller GSTIN if any, buyer PAN or GSTIN.
• SAC or HSN codes that align with your purpose code, for example SAC 998312 software development, SAC 998313 professional and technical activities.
• Currency, unit rate, total, with itemization that looks commercially reasonable.
• Invoice date and payment terms that explain whether this is advance, immediate, or post delivery.
• Seller bank details: IBAN, SWIFT, beneficiary name, bank address, exactly as provided by the vendor.
• Signature or stamp helps authenticity, even if digital.
• Match description to purpose code to avoid RFIs.

Avoid: vague lines like “services rendered,” no itemization, round totals without context, missing address, or loan like terms.

What qualifies as a strong agreement

• Parties and effective date, with jurisdictions named.
• Scope of work or deliverables with specifics that prove reality.
• Milestones and schedule tied to payment tranches.
• Fees and payment terms in clear currency and timing.
• Termination and liability to show a balanced, commercial contract.
• Signatures and dates, digital signatures are widely accepted.
• Clickwrap evidence for SaaS, include subscription screenshot, features, terms URL, and order confirmation.
• Email threads compiled in a single chronological PDF, with final acceptance visible.

Step by step: sending an outward remittance that clears first time

1. Identify the purpose code, for example P0802 for design or coding, P0801 for consulting, P0820 for licenses or subscriptions.
2. Prepare the document pack, invoice plus agreement if advance, recurring, high value, or an individual beneficiary.
3. Confirm tax position, check 15CA or 15CB needs with your CA, bank thresholds vary.
4. Submit to your AD bank, complete Form A2, attach invoice, agreement, and beneficiary details, and share a contact for quick RFI resolution.
5. Track and respond fast, answer only what compliance asks, precision beats volume.

Remember: When in doubt, include the agreement, it rarely slows a file and usually accelerates approval.

Timelines and costs for outward remittance

• Processing time: typically two to five working days after approval, one to two days for some faster corridors, add time for compliance queries.
• Fee heads: TT charges, correspondent bank fees, forex markup depending on your bank, ask for the all in cost.
• TCS: common rate is 5 percent above ₹7 lakhs per financial year for LRS non business categories, business to business cases can differ, confirm with your CA.

Common rejection reasons and quick fixes

• Mismatched names: Align buyer name across invoice, Form A2, and bank records.
• Advance without agreement: Add a statement of work or contract with milestones.
• Purpose code mismatch: Make invoice wording and SAC align with the chosen code.
• Incomplete bank details: Get IBAN, SWIFT, beneficiary name, bank address on vendor letterhead.
• Missing 15CB on high values: Consult your CA and provide forms per bank policy.
• Unverifiable vendor: Request registration certificate, tax ID, or ID proof for individuals.
• Proforma without SOW: Pair it with a detailed scope and timeline.

Scenarios: Indian freelancers and founders in action

Scenario 1: paying a US UI or UX designer a milestone payment

Decision: An advance needs an agreement. Prepare: proforma invoice for the advance, plus a short SOW with deliverables and dates. Submit: Form A2 with P0802, attach bank details. Outcome: approval in two to three days, later post delivery invoice clears even faster.

Scenario 2: SaaS subscription renewal stuck in compliance review

Issue: Invoice alone lacked context. Fix: add your subscription page screenshot, order confirmation, and terms of service link. Resubmit with P0820 or P0802 as applicable. Outcome: cleared within one day.

Scenario 3: advance to a video editor overseas for a long term project

Decision: Individual beneficiary, advance, recurring, agreement is essential. Prepare: MSA or email SOW PDF with schedule and acceptance. Submit: proforma invoice, agreement, Form A2, beneficiary details. Outcome: three to four days, predictable approvals thereafter.

Tools for managing international vendor payments

• Karbon Business: multi currency accounts in USD, GBP, EUR, CAD, automatic e FIRA in twenty four hours, flat 1 percent platform fee, zero FX markup using mid market rates, hold currency up to sixty days to manage risk. Use it for inward receipts, then settle outward payments via your AD bank for full control.
• Wise Business: transparent multi currency accounts, pay vendors locally in their currency.
• Payoneer: send and receive cross border funds across multiple currencies.
• RazorpayX International: Indian business focused tools for international payouts and documentation.
• Tazapay: B2B cross border with escrow and compliance automation for larger contracts.

Evaluate fees, supported corridors, documentation workflows, and settlement speed against your volume and vendor mix.

Final checklist: build your remittance template

The core rule: if payment precedes delivery, involves an individual, is recurring or high value, add the agreement. A tidy pack, invoice, agreement, bank details, correct purpose code, plus any tax forms, wins first time approvals.

• Create a reusable SOW template with milestones and payment triggers.
• Maintain a master checklist for KYC, Form A2, invoice, agreement, vendor bank details, and tax forms.
• Store verified beneficiary details securely, update when vendors change banks.
• Respond to RFIs same day, keep replies specific and complete.

Understand invoice versus contract requirements, prepare a complete submission, and convert compliance from a bottleneck into a predictable workflow. Your vendors get paid on time, your cash flow remains smooth, and your team avoids last minute scrambles.

FAQ

Invoice bhejna enough hai kya for outward remittance, ya bank will ask for contract also?

If the work is already delivered, the invoice is specific, and the amount is modest, many banks clear with invoice only. If it is an advance, long duration, high value, or you are paying an individual, attach an agreement or SOW to avoid delays.

Form A2 fill karte waqt P0802 aur P0820 me kaunsa choose karun for design plus software tools?

Use P0802 for services like design, coding, or IT work, and P0820 for licenses and subscriptions. If your payment includes both, split invoices or ask your bank which code they prefer based on the dominant component.

Freelancer ko advance dena hai, proforma invoice kaafi hai kya without contract?

For advances, a proforma invoice should be paired with a short statement of work or contract showing deliverables, milestones, and payment schedule. Without that, banks often raise an RFI and hold the funds.

Digital signature chalega kya, DocuSign or Adobe Sign wale agreements accept hote hain?

Yes, Indian banks generally accept properly executed digital signatures. Submit the PDF signed by both parties, and ensure names match the invoice and beneficiary details to keep compliance simple.

SaaS subscription ke liye har month bank poochta hai proof, kya bheju taaki baar baar stop na ho?

Along with the invoice or receipt, add a screenshot of your account page showing plan name and price, plus the terms of service link. This combo usually clears renewals smoothly, especially when the vendor and amounts are consistent month to month.

High amount, like USD 60,000 services payment ke liye kya extra documents lagenge?

Yes, high values trigger deeper review. Share the signed agreement or MSA, detailed invoice with itemization, correct purpose code, and check with your CA about 15CA or 15CB. This context reassures compliance and avoids multiple RFIs.

Individual contractor ko pay kar raha hu abroad, bank AML risk batata hai, isse kaise clear karun?

Provide a clear SOW or contract, identity proof if the bank asks, and a detailed invoice with scope and hours. Specifics reduce AML concerns by proving it is a legitimate commercial engagement.

15CA or 15CB ki need kab hoti hai for services remittance, and kya Karbon Business help karta hai?

Requirements vary by bank and amount, many banks ask for 15CB beyond certain thresholds for services. Your CA should advise based on nature of service and treaties. Karbon Business can streamline incoming client payments and documentation, while you use your AD bank for outward remittances along with the required tax forms.

Purpose code aur invoice description mismatch ho gaya, ab kya karu, payment stuck hai?

Either update the invoice description to match the chosen purpose code, or request your bank to change the code to the accurate one. Add SAC or HSN codes to strengthen the alignment and resubmit promptly.

Vendor invoice me bank details incomplete hain, kya alternate proof chalega?

Ask the vendor for a bank details confirmation on letterhead, or a signed document that lists beneficiary name, account number, IBAN, SWIFT, and bank address. Consistency with the invoice name is critical for approval.

Repeated SaaS renewals ke liye har baar documents bhejna padta hai, koi smarter way?

Create a single PDF pack with the latest invoice, a persistent plan screenshot, and the terms link. Save it as your template and submit with each renewal, most banks clear quickly once they recognize the file pattern.

International clients se payment aata hai Karbon Business par, vendors ko pay bank se karta hu, kya yeh acceptable process hai?

Yes, many Indian freelancers and founders receive funds via Karbon Business for speed and documentation, for example e FIRA, then use their AD bank for outward remittances. Keep your inward and outward documents aligned, purpose codes correct, and approvals stay predictable.