As a business owner, chasing unpaid invoices is already a challenging task, but when customers dispute invoices, it can escalate into a time-consuming and stressful situation. Not only does this add to your workload, but it can also contribute to cash flow issues for your business. Dealing with invoice disputes demands prompt and effective action to mitigate the impact on your finances and maintain positive customer relationships. This article will guide you through the steps to respond to a disputed invoice and resolve the issue quickly.
What is a Disputed Invoice?
A disputed invoice arises when a customer or client disagrees with the charges or refuses payment. The disagreement may involve the entire invoice or specific items within the invoice. By addressing the issue proactively, businesses can efficiently resolve disputes and maintain positive relationships with their customers.
Keep Communicating
It is essential to communicate clearly and openly with the customer when attempting to resolve the dispute. As a result, stay professional and avoid any aggressive or emotional language in your communications. Maintaining a respectful dialogue promotes constructive problem-solving and facilitates a resolution. You should ask the customer to clarify, in clear terms, what they are disputing. Disputes commonly relate to the:
- quality of the goods or services that you provided;
- unsatisfactory work;
- amount on the invoice;
- late delivery; or
- cost expectations of the customer.
It is essential to narrow the issues in dispute down and clearly agree on what problems are at hand.
Disputes often arise due to a misunderstanding by one party and can be easily resolved with clear communication. Therefore, ensure the customer knows you are keen to work with them to resolve the problem. You should also keep a record of all communications, as you may need to rely on them if the dispute escalates at a later stage.
Maintaining regular communication with the customers throughout the resolution process can demonstrate your commitment to addressing the issue promptly. It can also ensure that both parties remain engaged in finding a resolution.
Check the Contract for the Disputed Invoice
A dispute over an invoice is a contractual dispute. Once you have narrowed down the issues in dispute, review any written agreements you have with the customer. Check that you have fulfilled all of your obligations as stated under the agreement. There may be steps beyond the provision of the goods or services that you have overlooked and can easily fix. If the agreement has a dispute resolution clause, follow all required steps to deal with the dispute. This is not only to efficiently resolve the issue but also because you may need to show that you complied with this clause later on if the matter moves to legal proceedings.
If there was no formal written agreement, review any discussions or other correspondence that may combine to form your legally binding agreement with the customer. For example, you may have email correspondence that sets out:
- what you agreed to;
- pricing; and
- timeframes.
Similarly, you may have varied the terms of the original written contract in a later conversation or email exchange. So, you should carefully review your records for any such changes.
Negotiate
Next, you should attempt to negotiate a resolution to the dispute. Negotiating invoices and settlement amounts requires patience, understanding, and a willingness to find common ground. Keep an open mind about resolving the dispute in whatever way possible, and be prepared to compromise.
For example, can you offer to replace the goods or re-deliver the services in some way? Would you consider discounting the full invoice price?
Look at the bigger picture with this customer. If you hope for further work from them, it may be worth compromising to maintain a positive business relationship. Furthermore, it may be worth accepting less than the full price to resolve the issue and allow you to move on with business.
Engage in Alternative Dispute Resolution
If you cannot resolve the dispute by communicating with the customer, you may need a third party to assist with more formal negotiation attempts. Alternative dispute resolution options such as mediation or arbitration are less costly than court proceedings.
Mediation is a structured negotiation process with an independent, qualified mediator to assist parties to work through the issues. Any agreement that you reach with the other party can be confirmed in a written agreement.
On the other hand, arbitration is used where your ability to negotiate with the other party has broken down. Here, an independent arbitrator acts as a judge to determine a binding result.
Take Legal Action
If you are still unable to resolve the dispute after undertaking alternative dispute resolution methods, you may consider legal action. However, this method is very costly and time-consuming, so it should always be the last resort.
For smaller debts, you can save court costs by issuing proceedings in a lower court or tribunal. However, larger debts will involve proceedings with higher fees and legal costs because you will need legal representation. Before commencing proceedings, you should seek legal advice to get an informed opinion on your prospects of success with any legal action.
How to Recover Unpaid Invoices
Whether you're a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.
This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.
Key Takeaways
Having a disputed invoice can be a stressful and time-consuming experience for your business. However, such conflicts can be resolved quickly and easily with clear, calm communication between you and the other party. However, you will need an open mind about possible resolutions. When confronted with a dispute, you should first undertake negotiation. Where this is unsuccessful, and the dispute escalates, alternative dispute resolution and even legal action may be your best option. In the event of an invoice dispute, remain calm and aim to resolve it amicably. If resolution proves challenging, consider seeking guidance from a legal expert specialising in debt recovery.
Frequently Asked Questions
What is alternative dispute resolution?
Alternative dispute resolution is a way of clarifying customer conflicts that is less formal and costly than court proceedings. It includes methods such as mediation and arbitration.
When might an invoice be disputed?
A customer may dispute an invoice based on your goods and services if, for instance, the quality of your work is not in line with what they paid for. They may also challenge the invoice if it is higher than expected, usually based on prior contractual negotiations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.