Managing Short Paid Invoices in Your Business Effectively

A short paid invoice isn't just a minor inconvenience—it's a financial roadblock for your business. This can disrupt cash flow, complicate accounting, and, of course, strain client relationships.

Short payments can be caused by many factors, such as billing errors and misapplied discounts, but none are enough to raise this dispute. How can one eliminate such an inconvenience in one's path to success? This article will discuss the different tactics for settling short-paid invoices.

Table of Content

1. What is a Short Paid Invoice?
2. Why Do Short Pay Invoices Happen?
3. Impact of Short Pay Invoice in Business
4. How Do You Fix Short Pays?
5. Strategies to Prevent Short Pay Invoices
6. Role of Technology in Managing Short Pay Invoices
7. Prevent Future Short-Paid Invoices Conveniently
8. FAQs

What is a Short Paid Invoice?

A short paid invoice is issued when the payment submitted by the customer does not fully satisfy the invoice. Sometimes, customers find disputes and pay less than the total billing amount of your services. Regardless of whether the dispute is valid or invalid, your accounts receivable (AR) team needs to handle it with professionalism.

Ignoring this partial payment will provide the customer with a no-interest loan, hurting the company's profits. This also boosts the chances of the outstanding balance remaining permanently unpaid. Hence, the AR team needs to seamlessly handle invoice dispute management based on the payment terms.

Why Do Short Pay Invoices Happen?

There are multiple valid and invalid reasons why short payments occur. Let us look at both of them with examples.

Valid short payments

Partial payments can be justified if the business has violated the terms of the agreement while offering services to the client. In case of payments, maybe the shipment delivered was missing one item, but the client was still charged the same price for it.

If the customer has a valid case in terms of undelivered items, they will pay only for the part of the goods they received. Sometimes a short paid invoice letter can also occur due to human error, which is another valid issue that requires the accounts receivable team to correct.

Invalid short payments

Invalid short payments are false as the customer intentionally tries to avoid making the full payment. They might be looking for a discount or not have enough funds in their account. These invalid short pays are much harder to deal with as the customer knows they owe you money but doesn't want to pay.

If there is no honest mistake, it gets explicitly difficult for solopreneurs to expect prompt payments. Hence, collection procedures are one way to restore your funds.

Impact of Short Pay Invoice in Business

Receiving less than the agreed payment for a project is an obvious loss to your business. There is obvious business impact associated with sales tax. Invalid short payments are specifically irritating, as your organization has a legitimate claim to these funds.

Companies relying on the manual AR process will find this invoice exhausting to deal with. Other AR tasks get sidelined due to the time and resource-consuming follow-ups on short-pay invoices.

With all these highlighted issues, small businesses are rapidly integrating accounting software and encouraging their sales team to go for best accounting practices. By adopting AR platforms for managing short-paid invoices, businesses do get benefit them through automated and seamless workflows.

How Do You Fix Short Pays?

Short-pay invoices are rarely expected. Hence, the AR team only focuses on unexpected partial payments. However, restoring all unexpected pay is unheard of. Aligning a seamless payment strategy in place can reduce them. Free invoice templates are one of the many ways to fix payment shortfall.

Take a look at some of the ways to fix short-paid invoices.

Real-world examples

Take a look at the instance of unexpected short pays occur in businesses

Strategies to Prevent Short Pay Invoices

As we have already seen in the above sections, how to fix a short payment invoice. However, wouldn't it be better if it could be avoided altogether?

If you don't have a collection team, the strategies below help in the prevention of these invoices.

Role of Technology in Managing Short Pay Invoices

Managing invoice disputes was traditionally a manual process, technology has overtaken this business too. Present-day businesses do require such platforms to automate recurring payments.

Let us take a look at the different use cases for dispute management that facilitate streamlining those processes.

Prevent Future Short-Paid Invoices Conveniently

To short pay an invoice can be bothersome to any business, irrespective of sectors and scale—small and medium business to enterprise. However, taking the right precautions will help business owners, such as freelancers and contractors, rarely encounter them. Hence, it is always much better to prevent the issue before solving it.

InvoiceOwl is a free invoice generator software that can help in creating invoices as it has multiple free invoice templates for it. You can choose the one that suits your business and its products the best. This will not only help you with avoiding short-paid invoices but also help generate complex invoices instantly.