How to Handle Short Paid Invoices When a Client Pays the Wrong Amount [Free Email Template]
As a service business owner, the last thing you want to be dealing with is an unpaid invoice. A short paid invoice is a close runner-up.
Tracking down and contacting clients who don’t pay their bills in full is a lot of work. It also eats up your time, meaning you have less time to focus on the important stuff like selling your services and growing your business.
But the longer you stay in business, the more likely you are to encounter partial payments and unexpected short pays. While it’s an unfortunate reality for many business owners, there are some tactics you can use to prevent short-pay invoices in the future and manage them if they do happen.
What is a short paid invoice?
A short paid invoice, or short payment, happens when a client only pays part of the total amount owing by an invoice’s due date.
For example, if you billed a client for $500 with a due date of May 31st, and they only paid $250, you would be left with a short payment.
Why Short Payments Happen
Short payments happen for many different reasons, some more legitimate or understandable than others.
Valid reasons for short pays typically include:
- Human error, like forgetting to deduct early payment discounts
- Accounting errors, like a forgotten discount or refund
- Automated payments that don’t account for additional services
- Changes in processes or pricing
- Tax exemptions
Invalid reasons for short pays encompass:
- Client dissatisfaction or disputes
- Lack of cash
- Poor cash flow management
- Haggling after a job is done
Professional Ways to Handle Short-Paid Invoices
Short-paid invoices impact your cash flow and ability to pay your bills, suppliers, and employees on time and in full. Here are some best practices for handling short-pays when they happen.
1. Review the reason for the short-pay
Before you do anything, take a look at the short-pay in question. Consider the amount and any conversations or communications you or your employees had with the client that can explain the partial payment.
For example, did someone promise them a small discount because they were late for a job or brought the wrong materials? Or is the client a non-profit who receives a tax exemption? Could the short pay be a result of an accounting error?
Don’t approach the client requesting additional payment until you’re certain the error isn’t on your end. If it was, correct it and make any necessary adjustments to future invoices. You may also want to send the client a note explaining the error and assuring them it won’t happen again.
2. Determine a due date
If the short-pay isn’t your fault and you need to collect on it, the next step is to set a deadline. In most cases, you’ll decide to either:
- Carry the balance to the next invoice
- Request payment immediately
Carrying the balance forward is common for ongoing contracts where you expect to send another invoice to the client the following month.
Requesting immediate payment doesn’t mean payment is due this instant. Instead, it means choosing a reasonable deadline before informing the client. For example, within a week or ten business days. Check back on the payment terms in your contract and invoices to confirm what you previously outlined to the client.
READ MORE: What to include on an invoice
3. Send a reminder
If you are requesting payment immediately instead of carrying the balance forward to a future invoice, you’ll need to let your customer know. Either email, text, or call the client to let them know about the additional amount owing and provide them with information such as:
- The due date
- Accepted payment methods
- The invoice payment terms they agreed to
- An updated invoice that includes any late payment fees and the new amount owing
4. Be prepared for a discussion
If you aren’t sure why the late payment was made, be read to navigate a potential dispute. Once you send a payment reminder for a short pay, an unhappy client is likely to get in touch to explain why they think they shouldn’t have to make a payment.
Take down any details and review any and all communications with the client carefully. Talk to anyone on your team who was associated with the invoice and job in question before you respond. You want to make sure you get the full picture, first.
If it’s a valid dispute, let your client know the issue will be addressed and send them an updated invoice.
Evaluate each situation separately and do your best to work with the client. If they were short on cash, offer a payment plan option or if they missed a payment due to unforeseen circumstances, give them a short grace period.
READ MORE: How to let your customers pay in installments with consumer financing
5. Acknowledge the short payment was made
Once the client settles the short payment and the remaining balance is cleared, send a thank you note. This is good business practice and it will help to smooth over any leftover awkwardness or embarrassment on the client’s part.
As with regular unpaid invoices, if the client doesn’t pay the remainder and they ignore your attempts to reach out, you’ll need to move them to accounts receivable. Especially if the amount owing is large and they don’t pay the correct amount by the late payment invoice date.
Short Paid Invoice Letter Sample
Here’s an incorrect payment email template you can use to inform a customer of an incorrect payment amount and ask for the balance.
Hi [client name],
Thank you for your payment of [$0.00] on [date] for invoice [#001].
We wanted to send you a quick reminder that the total amount due by [invoice due date] was [$ amount]. The remaining balance of [$ amount] is due [short pay due date] and can be made via [electronic payment, check, cash, etc.].
If you have any questions, please feel free to reach out to us at [email address], [phone number], or [office address].
Have a great day!
READ MORE: 4 payment reminder letters to deal with overdue payments
How to Prevent Short Pays in the Future
Ultimately, the best way to manage short pays is to avoid them altogether. If you can prevent them from happening in the first place, you’ll save yourself a lot of time and money. Use these tips to get started:
1. Communicate clearly and often
Go over your payment terms before a job starts and send professional invoices on a predictable and reliable schedule. Explain your expectations upfront, such as how and when you would like to be paid, and include pricing information in all of your quotes, estimates, bids, and proposals.
Pro Tip: Use a professional invoice template to easily create invoices that include payment terms.
2. Use credit card processing and invoicing software
The more automation you use when it comes to invoicing and payments, the easier your life will be. Try software that automates invoices and facilitates credit card payments to make collecting online payments hassle-free and straightforward.
Using software like Jobber’s reduces human error, boosts your professionalism, and adds convenience for both you and your clients.
3. Try accounting software
If you’ve been managing your invoices and payments manually, chances are you’ve made a mistake here and there. The more you take care of your own accounting tasks on top of your other responsibilities, the more likely it is for an error to happen.
Accounting software can help you to generate invoices, track payments, and even manage your accounts receivable. All of which can save you time, money, and a lot of headaches.
This post was originally published in July 2016. It was last updated in December 2021.