In accounts payable and supplier management what are the typical steps involved in defining or creating a new supplier in the accounting or ERP system?

Introduction / Context:
Defining a supplier in an accounting or ERP system is a key control activity in the procure to pay process. The question asks about the typical steps involved in creating a new supplier record. Interviewers use this topic to test your understanding of master data management, internal controls and compliance with tax and payment rules. A properly defined supplier master prevents duplicate records, fraud and payment errors.

Given Data / Assumptions:

• The organisation uses a formal accounting or ERP system.
• New suppliers must be set up before purchase orders, invoices and payments can be processed.
• Correct legal details, tax identification and bank information are required.
• Supplier creation is subject to authorisation and control.

Concept / Approach:
Typical steps to define a supplier include collecting accurate legal information name, registered address, tax number and contact information; entering this data into a supplier master creation form in the system; defining payment terms, currency and tax codes; capturing bank account details with proper verification; and obtaining approval from authorised personnel before the supplier code becomes active. Once the supplier master is approved, purchase orders and invoices can be linked to this code. These steps ensure data quality, compliance with tax laws and prevention of fraudulent suppliers.

Step-by-Step Solution:
Step 1: Identify that supplier definition starts with collecting documents such as registration certificates, tax numbers and bank details.Step 2: Enter these details into the ERP or accounting system, creating a supplier master with fields such as name, address, contact person and tax information.Step 3: Set commercial parameters such as payment terms, credit limit, currency and default ledger accounts.Step 4: Capture and verify bank account information including account number and IFSC or routing code so that electronic payments go to the correct account.Step 5: Submit the supplier master for review and approval by authorised staff before using it in purchase orders or payments.

Verification / Alternative check:
Think about how a well controlled company would accept a new supplier. It would not make ad hoc payments without a formal record. Instead, it would ensure that all key details are correct and that a manager approves the creation of a new supplier code. This prevents duplicate suppliers, incorrect tax treatment and payments to unauthorised bank accounts. Option A is the only option that aligns with this controlled, step by step approach.

Why Other Options Are Wrong:
Option B suggests opening a separate bank account in the supplier name for every invoice, which is unrealistic and not required in normal business practice. Option C keeps supplier details only in a spreadsheet outside the system, which increases the risk of errors and fraud and does not represent a proper supplier master process. Option D proposes capturing supplier details directly on a payment voucher without validation or approval, which would bypass essential controls and is not acceptable in a properly managed accounts payable function.

Common Pitfalls:
Common mistakes include creating supplier masters without sufficient documentation, failing to verify bank details, or allowing multiple employees to create suppliers without segregation of duties. Another pitfall is allowing duplicate supplier codes, which can lead to duplicate payments. In exams and interviews, emphasise that supplier creation should be documented, controlled and approved, with complete and accurate master data before any transactions occur.

Final Answer:
The typical steps to define a supplier are to collect full legal and contact details, create a supplier master record in the system, define payment and tax details and bank information, and obtain proper approval before using the supplier for transactions.