No one likes dealing with an invoice dispute but, unfortunately, they happen all too often in the business world.
A client disputing invoices can lead to a lot of wasted time and money. This blog post will discuss seven common reasons for a disputed invoice and how to resolve them, including the finer points of invoice dispute law.
What is a disputed invoice?
A disputed invoice is an invoice that a customer or client does not agree with and therefore refuses to pay. In some cases, the customer may dispute the entire invoice, while in other cases, they may only take issue with certain charges.
There are many reasons why a customer might dispute an invoice. Perhaps they believe that the pricing is too high, that they received inferior goods or services, or that they were never even provided with the goods or services in the first place.
Whatever the reason, if you find yourself dealing with a disputed invoice, it's important to take action quickly and efficiently to resolve the issue. Your accounts receivable dispute management processes should involve logging the dispute before proactively working toward a solution.
How do disputed invoices impact a business?
While invoice disputes happen in virtually every business sector, companies must never overlook the monumentally detrimental impact they can bring. Firstly, if billing disputes are not handled correctly, the customer relationship may become damaged beyond repair. It could subsequently cost you a fortune in lost future sales.
Similarly, when a business owner has failed to deliver on their promises from the customer’s point of view, the client will likely warn others against using the company. Unfortunately, damaged reputations - fairly or unfairly - will hit small businesses hard. It is one of many reasons why a disputed invoice should never be ignored.
In addition to damaged customer relationships, unpaid invoices can harm the company’s finances and become a problem for account management due to becoming bad debt, especially if the customer’s complaint is not dealt with promptly. Similarly, the accounts payable column within your accounting system will be inaccurate due to the disputed amount.
Furthermore, accounting mistakes become more frequent when disputed invoices surface.
Late and unpaid invoices will limit growth opportunities and cause instability while customers are left feeling disappointed by the company’s services. Consequently, handling effective invoice dispute management is beneficial for all parties involved.
How quickly should an invoice dispute be resolved?
If a client wants to dispute an invoice, it's important to manage the situation as quickly as possible. However, if a time limit is not listed on your legal documents, contract law determines that the applicable statute of limitations will take control.
Generally speaking, clients should dispute invoices within 30 days of receiving them and provide a written notification along with any supporting documentation. For example, this could include photographs of the work they're unhappy with.
Clients may also dispute an invoice that has already been paid. Whether the disputed invoice is before or after the payment due date, a successful business will remain calm and try to implement an invoice dispute management strategy that works for everyone.
7 frequent invoice dispute examples
An invoice dispute could emerge for many reasons, but understanding why a customer may dispute an invoice will help streamline the resolution process. Here are seven of the most common causes of invoice disputes and how to deal with them:
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
With most of the invoice dispute examples listed above, preparation and communication are key to avoiding them.
By being proactive and taking the time to understand your client's needs and expectations, you can avoid many of the issues that lead to a client disputing invoices.
If an invoice dispute does arise, stay calm and try to resolve it amicably. If you're unable to do so, seek professional advice from a lawyer specializing in invoice dispute law.
With the right preparation and communication, you can avoid many invoice disputes and both keep your customers happy and ensure a consistent cash flow with minimised late payments for your own business.
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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?
When faced with an invoice dispute, a service provider must also ensure that the best team member is available to handle the dispute resolution process with an approach that will reach a suitable billing process through your payment portal without damaging the customer relationship.
The most common types of disputed invoices may arise, including;
- A disputed invoice due to quality
- Disputed invoices relating to the price
- An invoice dispute due to credit not being processed
- Disputed invoices due to administrative errors
- Duplicate invoice dispute arguments
- Event date disputed invoices
- Disputed invoices relating to missing goods
When a customer wishes to dispute an invoice over pricing errors, a sales manager should take control of the payment dispute.
The best person to resolve invoice disputes of a technical aspect is a technician or someone that understands the issues and can propose a suitable amendment and new time limit for the invoice to be paid.
Seeking legal advice
If you are still unable to amicably resolve the invoice dispute with your client, you may have to take legal action.
This is usually a last resort, but if the debt is large enough or you feel that the client is deliberately trying to avoid paying, it could be your only option.
Before taking any legal action, it's important to seek professional advice from a lawyer specializing in invoice dispute law.
They will be able to advise you on the best course of action and help you navigate the legal process.