- Customers may dispute invoices for a range of reasons, from clerical errors to disagreements over services, putting your business at risk of lost revenue or extra costs.
- There are various ways you can deal with disputed invoices, from administrative checks and direct negotiation, to legal action or alternative dispute resolution as a last resort.
- You can take action to prevent disputed invoices including having clear contracts, robust processes, and trade credit insurance to help protect your business financially.
- If a contractor invoice appears incorrect or unjustified, you can verify it against your agreement, collect supporting evidence, and raise a formal dispute quickly to guarantee your cash flow and defend your business interests.
What is a disputed invoice? And how do you deal with them?
14 January 2026
Summary
Key Takeaways
What is a disputed invoice?
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.
What are the common causes of invoice disputes?
- Customer dissatisfaction
- Invoice processing errors
- Pricing disagreements
- Payment constraints
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.
Four steps to deal with a disputed invoice
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.
How to dispute an invoice from a contractor in 6 steps
You need a structured approach when disputing a contractor invoice in a business-to-business context to protect your company’s cash flow and reduce financial risk. We recommend following these steps to manage the dispute while shielding your financial interests.
Step one: Verify the invoice against your contract
Check the invoice carefully against your purchase order, service agreement, or contract, and ensure that the charges, quantities, dates, and descriptions match what was agreed. Discrepancies could indicate an administrative error or an issue that needs to be formally addressed.
Step two: Gather supporting documentation
Collect all relevant documentation, such as contracts, delivery notes, emails, and approval records. Having a clear audit trail strengthens your position in discussions or formal disputes, which helps to protect your business against unjustified claims.
Step three: Raise the dispute formally
Let the contractor know as soon as possible in writing, outlining the reasons for disputing the invoice. Make sure you are concise and appropriate, referencing the contract terms and attaching any supporting evidence. A formal dispute helps establish a record that can be important if the issue goes any further.
Step four: Negotiate a resolution
Wherever possible, aim for an amicable solution, which could include correcting the invoice, agreeing on partial payment, or adjusting payment terms. Being cooperative may prevent delays and protect your business relationships while managing credit risk.
Step five: Escalate if necessary
If negotiation fails, consider formal dispute resolution, such as arbitration, mediation, or legal action. Our team at Allianz Trade UK can advise on the financial and contractual implications of escalation, helping your business assess whether the potential cost justifies pursuing the claim.
Step six: Protect your business with trade credit insurance
Insuring your B2B transactions with trade credit insurance reduces exposure to non-payment or delayed payment, including disputed invoices. Our policies can guarantee cash flow, covering losses from payment defaults and enabling your business to manage disputes without compromising financial stability.
How to protect yourself from future disputed invoices
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.
FAQs About Disputed Invoices
If you dispute an invoice, the payment process is usually paused while the issue is investigated, which may involve reviewing the invoice details, contract terms, or supporting documentation. During this period, both parties should communicate clearly to resolve the dispute, either by correcting errors, negotiating adjustments, or escalating to legal or arbitration processes if necessary.
There is no legally defined time limit for disputing an invoice, but most businesses aim to raise disputes as soon as possible, normally within 30 days of receiving the invoice. However, acting quickly helps protect your rights, makes it easier to gather evidence, and can prevent delays in resolving the issue.
Disputed invoices can vary depending on what the disagreement is about. Common types include incorrect billing (clerical or calculation errors), quality or service disputes, pricing disagreements, and partial or delayed payment disputes due to financial or contractual issues.
Disputing a transaction is generally a legal right, as long as it’s done in good faith and based on a legitimate issue with the invoice or service. That said, making false claims or disputing without valid grounds could lead to legal or financial consequences, including potential liability for unpaid amounts or breach of contract.
Whoever pays for a disputed charge depends on the outcome of the investigation or resolution process. If the dispute is upheld, the customer usually doesn’t have to pay the amount in question, but if the dispute is rejected, the business can expect payment as originally invoiced.
There’s no strict legal limit on how many times you can dispute an invoice, but repeated disputes without valid reasons can damage your relationship with the supplier. It’s best to raise disputes only when there’s a genuine issue and provide clear documentation to support your case.
If a customer refuses to pay a disputed invoice, you have the right to pursue the debt through formal channels, including sending a demand letter or initiating legal action. Trade credit insurance can also protect your business by covering losses from non-payment and helping manage financial risk while you resolve the dispute.
You can pause or stop work for a customer if an invoice is disputed, but it’s important to check your contract and any agreed terms before doing so. Communicating professionally while documenting your decision helps shield your business and maintain a record in case the dispute escalates.
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