Guide To Small Business Invoicing

11. How to Handle Invoice Disputes

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Business Finance

How to Handle Invoice Disputes

Apr 21, 2023 • 10+ min read
Businesswoman looking at invoices
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      Billing is often a touchy subject for business owners. It can feel uncomfortable to ask for money from clients, but notwithstanding, you need money to run your business and pay your bills. Avoiding the topic of outstanding bills can make the situation worse. If you have clients with several unpaid invoices, the balances may grow to the point of being unaffordable for your clients.

      As a business owner, you need to have these uncomfortable conversations with your clients to resolve the issue before it grows into an unmanageable mess.

      What is an invoice dispute?

      An invoice dispute happens when the client disagrees with the amount or terms of an invoice. Usually, this leads to a call or email disputing the invoice amount or due date. It may also occur if the client didn’t receive the goods or services listed on the invoice.

      In any of these cases, the client refuses to pay the invoice (either in part or in full), and a conversation needs to happen between the buyer and the seller to resolve the dispute. 

      What causes invoice disputes?

      There are numerous circumstances that might lead to an invoice dispute. Let’s take a look at the most common reasons.

      Incorrect prices

      Some invoices list the wrong items or prices. This may be a result of improper accounting or a simple data entry error. In this instance, the client may dispute the items or prices listed on the invoice which should then be carefully checked against your company’s records.

      Incorrect quantities

      The client may disagree with the number of items listed on an invoice. Like incorrect pricing, this may be a simple typo, or it may be a disagreement about the number of items delivered.

      Product descriptions

      Buyers expect that the items or services they have ordered will be delivered as described. In some cases, they may argue that they did not receive the expected item based on the item description.

      Late delivery

      Most items and services need to be delivered to a client in a timely manner. If the client receives their delivery after the expected timeframe, they may be unwilling to pay or expect a discount for the delay.

      Quality issues

      Clients demand quality items. If your products and services don’t adhere to the customer’s expectations, they will often try to return the item or ask for a discount on services. In either case, you may find yourself arguing about the quality of your delivery.

      Payment not credited.

      Occasionally, a client may have sent in a payment that has not yet been posted to their account. This might happen because the bill crossed the payment in the mail or your accounts receivable department is a little behind. 

      Payment demands for non-agreed items.

      If the seller is demanding payment for a service or product that was not agreed upon, the buyer may dispute the invoice. This might happen when the scope of work was expanded without being discussed with a client or (in the case of hourly billing) the project simply took longer than expected.

      Contractual disagreements

      Sometimes, there may be contractual disagreements where the buyer and seller have different interpretations of the terms and conditions agreed upon in the contract. This happens most often in large, complex projects. 

      Duplicate invoices

      Sometimes, invoices can be duplicated, leading to confusion and disputes. This can be avoided by having strong internal billing systems that avoid the possibility of billing errors.

      Accounting errors

      Accounting errors can also cause invoice disputes, such as incorrect tax calculations, duplicate entries, or inaccurate accounting records.

      Tactics for resolving an invoice dispute.

      There are several possible ways to work towards a resolution with your clients. Keep in mind that your clients may have several open invoices that are not yet past due, depending on your payment terms, but invoice disputes can start even on open invoices that haven’t hit their due date.


      The first and most important step is to communicate with the other party. Try to understand the other party’s perspective and explain your own. Often, a simple conversation can clear up misunderstandings and resolve the dispute.


      If the dispute cannot be resolved through communication, negotiation may be necessary. Both parties can discuss potential compromises, such as adjusting the price or delivery date, to reach a mutually acceptable solution.


      If negotiations are unsuccessful, consider bringing in a mediator. A mediator is a neutral third-party who can help the parties communicate and find a compromise that satisfies both parties.


      If the dispute still cannot be resolved, arbitration may be necessary. This involves submitting the dispute to a neutral third-party arbitrator, who will make a decision that is binding on both parties.


      If the dispute is with a large company, consider escalating the issue to a higher authority or a legal department. This may help to speed up the resolution process.

      Legal action

      If all other options fail, legal action may be necessary. This should only be considered as a last resort, as it can be costly and time-consuming. Involving the courts can lead to additional fees, and you may not always agree with the court’s ruling.


      Though prevention is not exactly a way to resolve a dispute, it can be thought of as a proactive way to avoid disputes. It’s important to prevent invoice disputes from arising in the first place. This can be done by maintaining accurate records, communicating clearly with clients and customers, and having a clear and transparent invoicing process, as follows…

      Tips for proactively preventing invoice disputes.

      While there are several ways to resolve invoice disputes, the best method is to prevent the disputes from happening. We’ve compiled several ways to minimize the chances of ending up in a dispute with a client.

      Clearly define the scope of work.

      Before starting any project, ensure that you and the client have a clear understanding of the scope of work, delivery timelines, payment terms, and other relevant details. Document these details in a contract or agreement that both parties sign to avoid misunderstandings.

      Maintain accurate records.

      Keep detailed records of all transactions, including invoices, payments, and receipts. This can help you quickly identify and correct any errors.

      Communicate clearly

      Keep the lines of communication open with your clients and customers. Ensure that you provide regular updates on the status of their project and that you are available to answer any questions or concerns they may have.

      Be transparent

      Provide a detailed breakdown of all costs associated with the project on your invoice. This can help to prevent disputes over pricing.

      Invoice promptly

      Send out invoices promptly after the work is completed. This can help to ensure that clients and customers pay on time, and can prevent disputes over payment deadlines.

      Use online invoicing software.

      Consider using online invoicing software that can help you create professional-looking invoices quickly and easily. This can also help you track payments and send reminders automatically. Invoicing software can also help you prevent accounting errors such as miscalculated sales tax or duplicate invoices.

      Follow up promptly.

      If a payment is overdue or a dispute arises, follow up promptly to address the issue. This can help to prevent the situation from escalating further.

      By proactively taking these steps, you can help to prevent invoice disputes from arising in the first place and ensure that your business runs smoothly.

      Final thoughts

      Invoice disputes are an unfortunate part of running any business. Understanding what types of disputes may pop up in the course of business and taking proactive steps to avoid disputes can minimize the impact of invoice disputes on your business. Remember that clear communication with clients can avoid many disputes. 

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      About the author
      Casey Long

      Casey Long is a CPA with over 15 years of experience. She has spent her career explaining complex financial concepts to various audiences. She started as a bookkeeper and worked her way up, so she understands all aspects of accounting processes.

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