A Payment Method code in Business Central records how a customer or vendor settles a document, and can post the settlement automatically through a balancing account.
A Payment Method is a code assigned to a customer, a vendor or an individual document that describes the means of settlement, for example bank transfer, direct debit, cash or card. It is descriptive by default, but it can also carry a balancing account. When a balancing account is set, posting the invoice settles it immediately instead of leaving an open entry to be applied later.
Payment Methods are maintained on the Payment Methods page, which you reach with Alt+Q and a search for Payment Methods. The chosen code appears in the Payment Method Code field on the customer card and the vendor card, on the Invoicing or Payments group, and it is copied onto sales and purchase documents where you can still change it per document.
A customer settles by bank transfer, so you create the code BANK with the description Bank Transfer and no balancing account. Sales invoice 103254 for CHF 4 820.00 dated 2026-03-12 posts an open customer ledger entry, and the incoming payment is applied to it later in a journal. For a walk-in sale paid on the spot you use a code CASH with a balancing account of type G/L Account pointing at the cash account, and the invoice posts closed with no open entry.
The frequent mistake is confusing Payment Method with Payment Terms. Payment Method is how the money moves, Payment Terms is when it is due and whether a discount applies, and swapping them produces wrong due dates. The second mistake is putting a balancing account on a code used for normal invoices: every invoice then posts as if it were already paid, the customer balance looks clean, and the real incoming payment has nothing left to apply against. Deleting or renaming a code that is already on open documents also causes posting errors because the value no longer resolves.
If you export payment files or bank instructions, keep the Payment Method codes short and stable, because reports and bank formats often group on them. A clean set of codes makes it straightforward to answer questions such as how much of last quarter's revenue arrived by direct debit versus manual transfer.
Payment Method describes how the money is transferred, for example bank transfer or card. Payment Terms describes when the amount is due and whether an early payment discount applies.
The Payment Method used has a balancing account defined, so Business Central settles the document at posting time. Remove the balancing account from that code if you expect to apply a payment later.
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