7 frequent invoice disputes and how to resolve them

Invoice disputes? They're a real pain for businesses, messing with your money and making things awkward with clients. If you're stuck dealing with late payments, confusing bills, or those super uncomfortable money talks, this guide is here to help. 

We'll give you some simple ways to handle, fix, and even stop invoice disputes from happening, all without ruining those important client relationships. Let's make invoicing easier so your business can really shine.

What is a disputed invoice?

In the U.S alone, 39% of all invoices issued by businesses are paid late and the primary culprit for that hammer blow to cash flow? Invoice disputes.  

More than 60% of late payments result from administrative errors and the dispute that results from those errors. Given that businesses in the Americas lose 51.9% of unpaid receivables not paid within 90 days, reducing the number of disputes that arise and quickly resolving those that do crop up is a huge administrative burden and a non-negotiable priority.

How do disputed invoices impact a business?

The ramifications of disputed invoices extend far beyond simple accounting discrepancies, creating ripples of disruption throughout various business sectors. These disputes can have significant and lasting effects on relationships, financial health, and operational efficiency.

Damage to customer relationships

Invoice disputes signal communication/service issues, eroding trust and damaging customer relationships. Prolonged disputes lead to customer attrition, impacting revenue and business sustainability.

Reputational harm

News of unresolved or unfairly handled invoice disputes can spread, tarnishing a company's reputation. Negative word-of-mouth, especially in today's digital age with online reviews and social media, can severely impact a business's ability to attract new customers and maintain its standing in the industry.

Financial implications and bad debt

Disputed invoices delay or stop payments, disrupting cash flow and straining company finances. This can hinder operational expenses and growth, potentially leading to bad debt, negatively impacting the bottom line and financial stability.

Accounting system inaccuracies

Frequent invoice disputes often highlight problems in the accounting system. These issues might include mistakes in billing, confusing pricing, or poor record-keeping. Such problems can cause misunderstandings and disputes, eventually leading to errors in financial records.

Increased accounting mistakes

When many invoices are disputed, your accounting team can get overwhelmed, leading to mistakes in entering data, balancing accounts, and reporting finances. These problems make resolving disputes harder and create extra financial challenges.

Impact on growth and stability

Frequent invoice disputes can seriously hinder your company's growth and stability. Instead of wasting time and resources on these issues, you can focus them on essential business operations and strategic growth. To achieve this, it's important to adopt effective dispute management strategies.

Clear communication, transparent documentation, and efficient resolution processes are key to preventing disputes and strengthening customer relationships. Accurate financial records also contribute to a stable business environment. By implementing these practices, you can unleash your company's true potential and set the stage for lasting growth.

How quickly should an invoice dispute be resolved?

Resolve invoice disputes quickly to maintain strong client relationships and ensure steady cash flow. Delays can increase tension, leading to further disagreements and potential business loss. 

Act promptly: acknowledge and begin addressing any dispute within 24-48 hours. This quick response shows your commitment to resolving the issue. Aim to resolve disputes within a week, though the timeline will vary based on complexity. Simple issues might be settled in a day or two, while more complex disputes involving service quality or contract terms may take longer and require detailed investigation and negotiation.

Key factors influencing resolution time:

• Communication efficiency: Prompt and clear communication between parties significantly speeds up resolution.
• Documentation availability: Having complete and accurate records readily available helps in quickly identifying and addressing the issue.
• Internal processes: Businesses with established dispute resolution processes tend to resolve issues faster.
• Complexity of the dispute: More complex disputes involving multiple factors or stakeholders naturally take longer to resolve.

Setting clear internal deadlines and following up regularly on the progress of dispute resolution can ensure issues are not left unattended. Regular review of dispute resolution times can also help identify areas for process improvement.

In cases where immediate resolution is not possible, maintaining open communication with the client, providing regular updates, and setting clear expectations for the resolution timeline is essential. This approach demonstrates a commitment to addressing the issue and can help preserve the client relationship.

8 frequent invoice dispute examples

1. Unsatisfactory work

One of the most likely reasons for invoice disputes is when a customer is unhappy with the work that was provided.

If you receive feedback from a client that indicates they are dissatisfied with your work, try to resolve the issue as quickly as possible while appreciating their legal rights as well as yours.

It's important to take the time to listen to their concerns and see if there is anything you can do to improve the situation. In most cases, restoring client happiness levels will result in them paying the disputed invoice - even if it's later than the initial invoice payment date.

Your first step should be to find out why they believe the work is unsatisfactory, and ask for evidence.

If you can see their point, offer to make the necessary changes or amendments free of charge. If you don't think the work is actually unsatisfactory, try to negotiate a compromise. This could involve offering a partial refund (including credit notes) or giving them a discount on future work, or potentially making revisions to the work in question.

Remember, the goal is to keep the client happy, so consider the impact on client experiences and the importance of customer experience to your business.

However, in cases where you have delivered a service that has not resulted in the desired outcome, you should refer to your contract.

In the contract, you should have a section that outlines what happens in the event of a dispute. This will help to protect you and ensure that you are not taken advantage of. Normally, this will outline that you are only responsible for delivering the work as specified in the contract, not the further outcomes the client expects to achieve.

If the customer disagrees with your conclusion, you may have to take more drastic action to ensure the invoice is paid.

It is also recommended to include a clause in your payment terms on how disputes are resolved, to act as a guideline for your staff to resolve complaints when this occurs.

2. Faulty goods

Faulty goods are one of the easier disputes to resolve as you can simply offer to repair or replace the goods. If this is not possible, then you should refund the customer in full.

On the flip side, the customer will have to provide you with evidence of the fault, such as photographs or a report from an independent expert.

If you are unable to resolve the dispute, then you can take the matter to court and the presence of this kind of evidence will be vital.

A good way of heading off this kind of dispute is to schedule a follow on call as soon as goods are delivered to check that everything was received and they are happy with their purchase.

Having the customer confirm that they are happy with the product in writing can also help to avoid disputes later on.

3. Late delivery

The contract signed with your customer should cover the possibility of late delivery penalties and how these are to be applied.

If you are going to be late in delivering the goods, then it is important to communicate this fact to the customer as soon as possible and give them an expected delivery date.

If you are at fault for the delayed delivery or have missed a promised date, then you may want to offer a discount or credit to the customer to improve their experience.

However, if the fault lies with a 3rd party delivery company, then it is important to get this in writing so that you can show your customer that you have done everything possible to avoid the delay.

4. Never agreed / Wasn't aware of the payment

Having a clear contract in place before any work commences is vital to avoid issues like this arising.

If the client claims they never agreed to the payment, then you need to be able to point to the relevant clause in the contract that they signed. Once you supply the invoice and supporting documents, their disputed invoice argument will fall flat.

If there is no contract, or the relevant clause is not clear, then you may have a more difficult time claiming payment.

In this case, you can potentially rely on a paper trail stating what was agreed and who with whom. Normally there is an email train or set of text messages that can be used as evidence to show what was agreed. So, even if there were no legal documents, other supporting documentation will help you get the invoice paid.

It's worth remembering that this could just be a miscommunication on their end, and will be resolved internally, so try and remain calm and professional throughout the process.

As always when dealing with disputed invoice payments, it is essential to remain professional when following up on overdue invoices.

5. Unable to make payment

There are a range of reasons why a customer might be unable to make payment on an invoice.

They may be experiencing cash flow issues and other money issues, which are common for smaller businesses. In this case, it's best to try and come to an agreement on a payment plan.

This way, you can still get paid and they don't have to worry about being hit with late payment fees or interest.

While it almost always makes good business sense to help customers as much as possible, you shouldn't let them take advantage of you. If a customer is constantly making excuses or trying to push back payment, it's time to have a serious conversation about the issue.

If a customer claims to be unable to make payments on a regular basis, consider adjusting the customer's credit limit so you don't put your business at financial risk when extending credit to them.

You could also implement partial payments upfront to cover some (or all) of your costs and late fees to discourage further payment delays if necessary.

Physical payment constraints are another possible cause for non-payment of the invoice. In this case, the issue is probably a service provider problem. While the client should not be expected to face fines linked to the disputed invoice, you will need to find a viable payment method or credit management strategy.

6. Pricing disagreements

Going over the pricing before starting a job and then keeping your customer constantly up to date with your billable hours as the job progresses can help avoid any pricing disputes when it comes time to invoice them.

If a customer does dispute your prices, try to come to a compromise that works for both parties. This could involve breaking down the cost of materials, labor, and overheads so the customer can see where their money is going.

In some cases, getting paid for the undisputed amount may aid your cash flow and serve as a good starting point. However, you should not simply write off the rest of the invoice.

A detailed invoice becomes more difficult to contest and ensures that you can meet your accounts payable commitments to material suppliers and other relevant parties.

Disputes arise when clients spend more than they budgeted for when making their purchase order. However, if you have taken every effort to avoid a pricing dispute then you should take a firm stance on payment.

This is especially true if the customer has already agreed to your prices and then tries to haggle after the job is completed.

7. Invoice processing errors

One of the most common reasons for an invoice dispute, which is seen in every industry, is when there is an error on the invoice. If your business is using manual invoicing processes, this is prone to human errors and mistakes can be made at any scale of accounts receivables team.

If this happens, go through the invoice line by line with the client so they can pinpoint the mistake, or see that everything is accurate. There is every chance that the client is simply misunderstanding the charges.

The best way to nip this kind of issue in the bud is to put in place a rigorous error-checking process for every outgoing invoice.

This could be as simple as another team member checking the accuracy of invoices before they're sent out, implementing an invoice checklist, or using software to automate checks. If you are dealing with high invoice volumes consider an automated invoicing tool that can create invoices for you, like ChargeBee

8. Duplicate invoicing

Duplicate invoicing bills a customer multiple times for the same product or service due to administrative errors, system glitches, or miscommunication, causing client confusion and questioning of professionalism.

Resolving these disputes requires quick action to void the erroneous invoice and reaffirm the correct billing. Implementing thorough invoice tracking and cross-checking procedures can greatly reduce the occurrence of duplicate invoices, thereby preventing many potential disputes.

What to do when an invoice is disputed

When an invoice is disputed, a clear and structured approach can mitigate potential damage to client relationships and expedite resolution.

Acknowledge promptly and professionally

Acknowledge dispute receipt within 24-48 hours. This confirms receipt, shows seriousness, and sets a professional tone for resolution.

Stay calm and empathetic

Disputes can be stressful, but staying calm is crucial. Listen actively to the client's concerns and demonstrate empathy. Understand their perspective, even if you disagree with their claims. An empathetic approach can help de-escalate tensions and facilitate a cooperative resolution.

Review your records

Thoroughly review all relevant records associated with the disputed invoice. Check the details of the invoice against your order records, service agreements, and any other related documentation. Investigate for potential errors or inconsistencies on your end.

Gather all documentation

Compile all documentation related to the invoice, including:

• Original invoice
• Purchase orders
• Delivery receipts
• Service agreements
• Communication logs

Having this documentation ready will help you address the dispute effectively and efficiently.

Pause active collection (on disputed amount)

While you investigate the dispute, temporarily halt any active collection efforts on the disputed amount. This prevents further aggravation of the situation and shows the client you are willing to resolve the issue before pursuing payment. Make sure to clearly communicate this pause to the client.

How to investigate a disputed invoice

Investigating a disputed invoice requires a systematic approach to ensure a fair and efficient resolution. Here’s how to conduct a thorough investigation:

Internal checklist: Verifying on your end

Before addressing the client, conduct an internal review to verify all details:

• Invoice accuracy: Double-check all figures, calculations, and details against the original order, service agreement, and delivery records. Verify dates, quantities, prices, and any applied discounts.
• Service delivery confirmation: Ensure that the service was delivered or the goods were shipped as per the agreement. Check delivery receipts, service logs, and any communication confirming delivery or completion.
• Adherence to terms: Confirm that the invoice complies with the agreed-upon terms, including payment terms, pricing, and any specific conditions. Review the contract or agreement for any clauses relevant to the dispute.
  
  

Effective client communication

Maintain open and respectful communication with the client to gather more information without escalating the issue.

Example scenario:

A client, "ABC Corp," disputes an invoice stating they were charged for 10 hours of consulting when they only received 8.

• Initial contact: Reach out to the client promptly: "Hello ABC Corp, we received your concern regarding invoice #1234 for consulting services. We're looking into it and want to ensure we understand everything correctly. Would you have a few minutes to discuss this?"
• Asking clarifying questions: Instead of challenging the client's claim, ask for details: "Could you please clarify the timeframe you are referring to? We want to ensure we have the correct records. For example, do you recall which dates the 8 hours of consulting took place on?"
• Maintain a calm demeanor: "Thank you for providing that information. We will review our records and compare it with what you have provided. We appreciate you bringing this to our attention so that we can ensure everything is accurate."
  
  

Importance of getting dispute details in writing

Request the client to put their dispute details in writing. This ensures clarity and provides a record of the exact issues raised.

• Request in writing: "To help us better assist you, could you please send us a brief email outlining the specific points of the dispute? This will help us ensure we address all your concerns thoroughly."
• Benefits of writing: Written details minimize misunderstandings, create a clear reference point, and can be shared with other team members involved in the resolution process.
  
  

Analyzing the validity of the dispute

Once you have gathered all internal data and client information, analyze the validity of the dispute:

• Misunderstanding: Is the dispute based on a simple misunderstanding of the invoice or terms? Providing clarification and additional details may resolve the issue.
• Mistake on your part: Did an error occur on your end, such as incorrect pricing, wrong quantities, or billing for services not rendered? If so, acknowledge the mistake, apologize, and correct the invoice promptly.
• Client issue: Is the dispute due to a client issue, such as failure to receive goods because of an incorrect address provided by them, or changes made after the invoice was issued? Clarify the situation and provide evidence or documentation to support your case while maintaining professionalism.

By systematically investigating the dispute, you can resolve the issue efficiently and maintain a positive client relationship.

How to resolve invoice disputes

When an invoice dispute arises, several strategies can be employed to reach a resolution that satisfies both parties.

Own mistakes and apologize

Own and swiftly correct business errors, like re-issuing invoices or credit notes. Honesty and prompt action maintain trust.

Clarify misunderstandings

If the dispute stems from a misunderstanding, provide clear explanations and supporting documentation. This might include detailed records, contracts, or communication logs. Providing evidence and clear information can often resolve the issue quickly.

Negotiation and compromise

In some cases, negotiation and compromise may be necessary. Be prepared to discuss the disputed amount or service details with the client and find a middle ground that both parties can agree on. This demonstrates flexibility and a willingness to resolve the issue amicably.

Offer partial credit or a discount

If appropriate, consider offering partial credit or a discount. This is particularly useful when there has been a minor service issue or a slight discrepancy. Offering a concession can often lead to a faster and more positive resolution.

Revise scope or payment

Agreeing on a revised scope of work or payment for the undisputed portions of the invoice can also be an effective strategy. This allows for partial payment while the dispute on the remaining amount is being addressed.

Document the resolution

To avoid future misunderstandings, both parties should sign a written agreement documenting the resolution. This formal record clarifies terms for both parties.

Stand firm when necessary

If a dispute is unfounded, stand firm. Communicate clearly and politely, providing evidence (service records, contracts, communication logs) to support your invoice and assert your position professionally

By employing these strategies, businesses can effectively resolve invoice disputes while preserving positive client relationships and ensuring smooth financial operations.

How to prevent invoice disputes

To proactively minimize issues, consider these preventative measures to avoid invoice disputes altogether.

Provide clear contracts and quotes

Detail the scope of work, deliverables, pricing, payment terms, and dispute resolution clause when starting with the client/customer. This ensures that both parties have a mutual understanding of what is expected and agreed upon. A well-defined contract minimizes ambiguities that can lead to future disputes.

Maintain accurate and detailed invoicing practices

Itemize services or products, include correct quantities, agreed rates, PO numbers, and clear due dates on every invoice. This level of detail leaves little room for confusion and provides a comprehensive record of the transaction.

Proofread the invoice

Double-check all invoices before sending them. This simple step can catch errors in pricing, quantities, and client information, preventing many disputes before they arise.

Keep up client communication

Provide regular updates during projects, confirm understanding, and obtain sign-offs on deliverables. Keeping clients informed and involved throughout the process ensures there are no surprises when the invoice arrives.

Be transparent with your payment and dispute policies

Make your payment and dispute policies easily accessible. Clearly outlining your expectations and processes upfront helps manage client expectations and provides a reference point if disputes do occur.

Employ efficient record keeping

Ensure easy access to contracts, communications, and delivery proofs. Good record keeping makes it simple to verify details and address any concerns quickly and efficiently.

Post-project/service follow-up

Ensure client satisfaction before invoicing. Checking in after a project or service delivery allows you to address any concerns or issues proactively, ensuring the client is happy before they receive the invoice.

How to maintain client relationships during disputes

Maintaining positive client relationships is crucial, even when dealing with invoice disputes. The following strategies can help navigate disagreements while preserving valuable client connections.

Focus on the problem, not the person

Focus discussions on the invoice issue, not personal attacks. Frame the conversation around finding a resolution to depersonalize conflict and maintain constructive dialogue.

Listen actively and show empathy

Actively listen to the client's concerns without interrupting. Demonstrate empathy by acknowledging their frustration and validating their feelings. Showing that you understand their perspective can help diffuse tension and build trust.

Seek mutually agreeable solutions

Aim for solutions that work for both parties. Be open to negotiation and compromise. Explore various options to find a resolution that addresses the client's concerns while also protecting your business interests. Collaboration can strengthen the relationship and lead to positive outcomes.

Use the dispute as a learning opportunity to improve your processes

View disputes as chances to find invoicing or service weaknesses. Analyze causes, make changes to prevent future issues, showing clients you value feedback and seek improvement.

Know when to let go (for minor, irreconcilable disputes vs. valuable long-term clients)

Sometimes, it’s better to concede minor disputes to maintain a valuable client relationship rather than jeopardize it. Weigh the potential loss of a client against the dispute’s cost to make an informed decision.

Invoice disputes toolkit: Free templates and checklist

Dealing with invoice disputes can be time-consuming and stressful. But with the right tools, you’re equipped to handle disputes quickly and professionally.

We’ve created a free toolkit to help you manage the process:

• A step-by-step checklist to guide you through resolving invoice disputes efficiently.

• Acknowledging the dispute
• Requesting additional information
• Proposing a resolution
• Confirming the resolution

Use these resources to streamline your process, communicate clearly, and reduce time spent on back-and-forth.

Resolving invoice disputes when a client still won’t pay

In many cases, implementing the above steps will yield a mutually beneficial solution for all parties involved. However, if a customer refuses to pay despite your best efforts to show empathy or adjust the payment terms, it may be necessary to escalate the issue.

While no strict invoice dispute laws currently exist, contract laws are in place to protect small businesses and large companies throughout invoicing disputes. The UK Law on Late Payment of Commercial Debt enables firms to charge interest, claim compensation, and recover costs or legal fees associated with debt collection.

The contract law that the customer agreed to when completing a purchase order should include clauses related to the invoice structure. This may cover the payment due date, payment methods, late payment charges, non-payment repercussions, and invoice dispute methods.

When a customer fails to pay, reminding them of your legal rights as per contract law and the supporting documents pertaining to their purchase agreement will often make them pay attention. If their dispute is unwarranted in this instance, this action leads to invoices being paid promptly.

As a sales manager, offering a cure period that gives the customer another opportunity to pay the invoice is advised. A time limit of 30 days is a common solution but you may set a different payment duration or cure period depending on the circumstances.

However, allowing a client to break legal agreements like a formal contract when you have provided a satisfactory product or service is never an option. If nothing else, it will set a bad precedent for how you plan to manage future disputed invoices.

The goal is clear: ensure that the client comes away from their customer disputes with an improved view of the business while simultaneously committing to meet the payment terms set out by the revised invoice.

Who should take control of resolving invoice disputes?

The responsibility for resolving invoice disputes often falls to different roles depending on the size and structure of the business, as well as the nature of the dispute itself.

For growing businesses

• Accounts receivable/Billing manager: As businesses grow, a dedicated accounts receivable specialist or billing manager is often the first point of contact for disputes. They have direct access to invoicing records and payment histories.
• Customer service representative: If the dispute is related to service delivery or product quality, a customer service representative might initiate the resolution process, escalating to other departments if necessary.
  
  

For larger businesses

• Dedicated dispute resolution team: Larger organizations might have a specialized team or department solely responsible for managing and resolving invoice disputes. This ensures consistent processes and expertise.
• Sales/Account manager: For strategic or high-value clients, the sales or account manager who maintains the relationship might take the lead, collaborating with finance and operations to find a solution.
• Legal Department: In cases of complex contractual disputes, significant financial implications, or persistent non-payment, the legal department may become involved to advise on legal recourse.

Regardless of who takes the lead, a clear internal process for escalating and collaborating on disputes is essential to ensure they are handled effectively and consistently.

Seeking legal advice

Wrapping it up

Handling disputed invoices effectively is vital for business success, protecting cash flow, and fostering strong client loyalty. By addressing disputes promptly, maintaining open communication, and implementing preventative measures, businesses can minimize disruptions and ensure smooth financial operations. 

To aid in this process, download your free Invoice Dispute Toolkit, which includes email templates and a resolution checklist, designed to streamline dispute management.

Want to streamline your accounts receivable and get paid faster? Learn more about Chaser  accounts receivable solutions.

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