One of the most common excuses for non-payment is the sudden appearance of an invoice dispute.

The invoice may have been issued 30, 60 or even 90 days earlier. The goods have been delivered, the service completed, and no complaint has been raised. Then, shortly after payment becomes overdue, the debtor announces that the account is “in dispute”.

Sometimes the dispute is genuine. Often it is not.

After almost 40 years working in debt recovery, we have found that many alleged disputes are little more than delaying tactics designed to postpone payment whilst the debtor preserves cash flow or gains leverage in negotiations.

Prevention Is Better Than Cure

As with most credit control problems, prevention is far easier than resolution. Many invoice disputes arise not because either party is acting dishonestly, but because expectations were never properly documented at the outset.

Before supplying goods or services, businesses should ensure they have clear quotations, agreed prices, written specifications where appropriate, and comprehensive Terms and Conditions. It is also good practice to incorporate a clear dispute procedure within your Terms and Conditions and to reinforce that requirement on every invoice issued.

If a customer believes there is an issue with an invoice, they should be required to notify you promptly and provide full details of their concerns. It is not unreasonable to stipulate that any query relating to an invoice should be raised within seven days of the invoice date. This encourages issues to be identified and addressed whilst the facts remain fresh and before positions become entrenched.

Without such a procedure, suppliers can find themselves facing alleged disputes months after the goods have been delivered or the services completed, often at a time when payment is already overdue. A customer who receives an invoice, does not object, accepts the goods or services provided, and then waits several months before alleging a dispute may face difficult questions as to why the issue was not raised at the earliest opportunity.

Account Application Forms: The Forgotten Document

Many businesses view account application forms as little more than an administrative exercise. Once completed and approved, they are often filed away and forgotten about.

In reality, a properly completed account application form can become one of the most valuable documents a business possesses. In 99% of cases, it will never be needed again. The customer trades, pays on time, and the document remains buried in a filing cabinet or computer folder for years.

However, every now and then a dispute arises. When that happens, an account application form signed by the customer and incorporating your Terms and Conditions can be worth its weight in gold.

Many disputes that initially appear complicated can often be resolved quickly by referring back to the documentation agreed at the outset of the relationship. Questions surrounding payment terms, contractual obligations, specifications, delivery arrangements and jurisdiction are often answered by the documents the customer signed when the account was first opened.

An account application form serves another important purpose. It should provide the information required to carry out meaningful credit checks before credit is granted. Without accurate information, even the most comprehensive credit report may be of limited value. A properly completed account application form helps ensure that credit searches are carried out against the correct legal entity before any goods or services are supplied.

The lesson is simple. Obtaining a properly completed account application form may feel like an unnecessary administrative task when a new customer is eager to place an order, but when a dispute develops months or even years later, you will be grateful that you took the time to obtain it.

Investigating Invoice Disputes: What Exactly Is in Dispute?

It is imperative in the first instance that you ask your customer to state clearly the basis of their dispute. Many businesses make the mistake of immediately defending their position or arguing about the amount outstanding before fully understanding what is actually being challenged.

The customer should be required to explain the basis of the dispute, which goods or services are affected, the value they are placing upon the dispute, how that figure has been calculated, and any documents or evidence they rely upon.

A genuine dispute should be capable of being clearly explained and supported by evidence. If the customer cannot identify what is wrong, cannot quantify their alleged loss, or repeatedly changes their position, alarm bells should start ringing.

Only once the customer has clearly set out their position should you consider the issue of disputed and undisputed sums.

One of the biggest misconceptions in business is that raising a dispute allows a customer to withhold the entire invoice. It does not.

The law does not permit a party to withhold sums that are clearly due simply because another part of the invoice remains in dispute. If a debtor accepts that part of the invoice is due, then that amount should normally be paid whilst the disputed element is investigated and resolved.

To allow otherwise would give debtors a powerful weapon. They could simply identify a minor issue, withhold the entire balance, and force suppliers into lengthy negotiations whilst retaining the benefit of the goods or services already supplied. The courts have repeatedly demonstrated their reluctance to support that approach.

Invoice Disputes and the Ruttle Plant Hire v DEFRA Case

A useful example can be found in the case of Ruttle Plant Hire Ltd v Secretary of State for Environment, Food and Rural Affairs (DEFRA).

In that case, invoices submitted by the contractor contained errors. DEFRA argued that because the invoices were incorrect, no payment was due until corrected invoices were submitted.

The Court of Appeal took a different view. The court recognised that substantial work had clearly been carried out and that DEFRA was aware that payment was due for at least part of the work undertaken.

The judgment reinforced an important commercial principle. An error within an invoice does not necessarily entitle a customer to reject the entire claim and refuse payment altogether where an undisputed amount can be identified.

The decision is also significant from a Late Payment perspective. The Court of Appeal’s reasoning reinforces the principle that a customer should not be permitted to withhold obviously due sums merely because there is disagreement over other elements of an invoice. Where an undisputed amount should have been paid, the supplier also has the right to pursue statutory interest and compensation under the Late Payment legislation in respect of those overdue sums.

For businesses dealing with disputed invoices, the message is straightforward. Simply alleging that an invoice is incorrect does not automatically justify withholding payment in full. If part of the invoice is clearly due, that amount should be paid, leaving the parties to resolve any genuinely disputed balance separately.

Should You Reissue a Disputed Invoice?

In some disputed invoice situations, the customer may request that a revised invoice be issued.

There is no general legal requirement to reissue an invoice simply because a customer disputes it. Whether a revised invoice is necessary will depend upon the nature of the issue being raised.

However, from a commercial perspective, if reissuing an invoice helps remove an obstacle to payment, there may be little reason not to do so.

If you decide to issue a replacement invoice, it is important that you clearly explain why it has been issued. The accompanying correspondence should state that the revised invoice has been provided to address the specific issue raised and should make it clear that the original liability for the goods or services supplied remains unchanged.

Failure to do so can create confusion and may allow the debtor to argue that the original invoice was invalid or that payment only became due when the replacement invoice was issued.

A revised invoice should therefore be accompanied by a clear explanation confirming precisely what has changed and, equally importantly, what has not.

Final Thoughts on Invoice Disputes

Not every invoice dispute is genuine and not every invoice dispute is dishonest. The key is to establish the facts quickly.

Businesses that maintain proper documentation, obtain signed account application forms, carry out appropriate credit checks, incorporate a clear dispute procedure into their Terms and Conditions, and insist upon full particulars of any dispute are generally in a far stronger position than those that do not.

Most importantly, do not assume that simply because a debtor says an invoice is disputed that payment is no longer due. Require them to explain their position, support it with evidence, and identify precisely what amount is genuinely in dispute.

Very often, that simple request is enough to reveal whether you are dealing with a genuine dispute or simply another excuse for non-payment.