What are disputed invoices and how can they be resolved?

In the ideal world, all transactions would be settled promptly and in full. The reality of business, however, is that occasionally, queries or disagreements will arise. If a customer disagrees with an invoice and refuses to settle it, then it becomes a disputed invoice. How your business deals with disputed invoices can be critical.

Find out what you can do to minimize the chances of an invoice being disputed and what to do when that scenario does arise.

Occasionally, and for a number of reasons, a customer may disagree with an invoice and may refuse to pay. This invoice is considered to be “disputed” until the situation is resolved.

Customers may dispute invoices for several reasons, including pricing errors, invoice processing errors, quality complaints, lack of resources, or bad faith. A clear distinction should be made between invoices which are disputed by the customer and those which are simply not paid for any number of reasons.

If a customer receives the wrong item, or the wrong number of items, or if their order is incomplete for any reason, they may dispute the invoice.

Other typical grounds for disputing an invoice include administrative errors such as typos and omissions, or accounting errors such as double billing.

Disputed invoices can be costly in terms not only of delays in cash flow, but also in terms of the resources required to resolve them. Procedures to ensure that disputed invoices can be investigated and resolved as quickly as possible are therefore essential.

Step 1: Acknowledge the dispute

The first step to take when a customer disputes an invoice is to acknowledge the situation. Let the customer know, in writing, if possible, that the complaint has been received and is being investigated. This is key to a successful dispute resolution process.

Step 2: Investigate

Once the payment dispute has been acknowledged, an investigation should be initiated. Review all documentation regarding the order, such as proof of delivery documents, purchase orders, bills of lading, tax receipts, and so on, to establish a comprehensive picture of the situation. Examine any additional communication, including emails and phone records which might shed additional light on the dispute.

Step 3: Communicate

As with most aspects of good customer service, clear communication is essential. Reassure the customer that their query is being investigated and that you are seeking to resolve the situation. Indicating how long the process is likely to take and contact details are effective ways of building and maintaining a constructive customer relationship.

Step 4: Offer solutions

Disputes can often be resolved amicably, without recourse to legal action, by engaging constructively with the customer and offering mutually beneficial solutions.

Administrative errors, such as incorrect quotes, can often simply be resolved with an apology and a replacement invoice. 

When the dispute concerns damaged, delayed or incorrect orders, solutions such as replacements, additional service, exchanges, or discounts may be appropriate.

In some cases, a full refund may be the most fitting and acceptable solution. A gesture of goodwill may be appropriate for particularly valued or inconvenienced customers.

Step 5: Document resolution

Once an acceptable solution has been found, it is important to document and confirm the agreement, to prevent future misunderstandings. Written records of the complaint and its resolution should be issued to both parties.

 Step 6: Implement changes

Once a resolution has been found, it is essential to take prompt action to ensure its implementation. Whether the resolution involves a replacement, refund, correction, or discount, the customer will feel valued if they see the situation being resolved quickly and courteously.

Customers whose concerns are dealt with in this way are more likely to return and recommend your company to others.

Clear invoicing is one way of preventing misunderstandings between you and your customers. Detailed, itemized bills can answer many customer queries before they turn into complaints. 

As well as containing all legally required information regarding the identification of your company and any applicable taxes, transparency around timescales and delivery conditions is an important way of ensuring that you and your customer have a shared understanding of the transaction. 

Written terms of sale, commonly known as payment terms are a useful way of establishing a mutual understanding of the transaction and of preventing disagreements later. Asking customers to sign and return your terms and conditions is a standard way of ensuring that they are aware of issues around delivery, quality, and billing disputes.

A comprehensive agreement will also spell out formal invoice dispute methods, including the time limit for invoice complaints (in many countries, this is three weeks/21 calendar days) and a cure period for settling unpaid invoices, typically a 30-day processing time.

Occasionally, despite procedures to prevent disputes from arising and attempts to resolve them amicably, it may be necessary to turn to legal routes to handle invoice disputes.

Your terms of contract and in-house dispute resolution procedures should set out the steps to take if you decide to take legal action. In complex cases, legal advice should be sought to ensure that the correct disputed invoice clauses and laws are being followed.

Contract law regulates the obligations established by the payment terms between private parties and the law of contracts varies depending on the jurisdiction. This law also governs the time limit for disputing the invoice. However, it is quite common for businesses to have their own legal agreements regarding the timeframe for when a customer disputes an invoice.