What is a disputed invoice? And how do you deal with them?

A disputed invoice is where a customer disagrees with an invoice raised and submitted by a product or service provider, and refuses to pay the whole or part of that invoice.

Customers should ideally raise their dispute as soon as possible. It’s common practice for this to happen within 30 days of receipt, although there’s no legally defined time limit. This should be done in writing by a formal letter of dispute, although it’s also common for this to be sent as an email. However you receive the formal notice, it’s on your company to resolve the issue as quickly as possible.

There are multiple reasons that a customer may dispute an invoice. The most common reason is that the details provided are incorrect. There may be a clerical error on the invoice, a certain tax may have been incorrectly added or omitted, or there may be an incorrect charge. These disputes are often easy to solve by re-issuing a corrected invoice, however this isn’t always the case.

Customers may also dispute invoices when they are unhappy with the product or service they have received, they disagree with the price you’ve charged them, or if they are unable to pay for financial or cash flow reasons. In these instances, resolving the dispute may take careful investigation, negotiation, and even legal action.

Dispute resolution is usually a multi-step process of increasing escalation. But before you begin, it’s important to remember that the most helpful thing any business can do in a dispute is maintain a strong customer relationship.

If customers feel like you’re working with them to resolve their issues, they’re more likely to come to an amicable solution than if you take a more confrontational stance. As tempting as it might be to demand payment for services or products without attempting to come to an agreement, this will usually lead to expensive, drawn out disputes.

Focus on clear, open and honest communication, admit any mistakes, and be considerate of your customer’s position. Then work through the following four steps.

Step one: Check the accuracy of your invoice.

Mistakes do happen. If you’ve made an error on the invoice, accept responsibility, make the required changes, and resubmit the invoice. Allowing your customer extra leeway with payment dates to account for the time taken to resubmit the invoice will help safeguard your relationship. If there are no errors, notify the customer and move onto the next step.

Step two: Investigate the dispute thoroughly.

You need to investigate the customer’s reason for disputing the invoice, the quality of product or service you’ve supplied, and the contract between you and your customer. Determine whether or not your customer has a valid reason not to pay, and ask for any documentation or other supporting evidence. Refer your customer back to your contract and terms and conditions if appropriate.

Step three: Suggest an amicable solution.

Once in possession of all the facts, propose a solution to your customer. This may be sending out a replacement, offering longer payment terms or splitting the invoice into instalments, or reducing the value of your invoice. Always weigh up the costs of offering a discount against the cost of escalating the dispute further. Legal advice, court fees and even arbitration don’t come cheap.

Step four: Seek legal advice.

If you’re unable to reach an amicable agreement, the next option available to you is seeking legal advice. A solicitor or lawyer will advise you on making a legal claim or seeking alternative dispute resolution through arbitration. This will incur additional costs which may not be recoverable, so factor this into your decision.

Resolving disputes can be expensive and time consuming. It’s often far better to avoid disputes entirely by taking steps to protect your business.

A good place to start is with a review of your contracts and terms and conditions. Ensure they state clear payment conditions, and that you’ve included procedures on dispute resolution. Let your customers know how they can address any issues without withholding payment, and they’ll be less likely to refuse to settle their invoices.

You should also review your procedures around quotes and agreeing prices. Customers should be clear on how much they will owe before you send the invoice. If they’re expecting a much different figure to the one you send them, they’re likely to lodge a dispute, even if you’ve told them in your contracts that you reserve the right to add an additional fee.

Another option to protect your business is through insurance. Trade Credit Insurance pays out in the event of non-payment of an invoice, meaning that if a customer does lodge a dispute, you won’t be left to handle the financial or cashflow implications.

Insuring your invoices with trade credit insurance means you’re safe even in the event of a large, time-consuming dispute that could involve legal action or arbitration. To learn more about the policies we offer, get in touch with our expert team for a free consultation.