A disputed invoice is not a bookkeeping problem until someone tries to “fix” it in the books before the dispute is settled. Deleting the invoice, issuing a full credit note to make the chasing stop, or quietly paying half: each of these leaves a ledger that no longer matches what was agreed. The rule on both sides is simple: the original invoice stays, the dispute is flagged, and the books only change when the outcome is agreed.
When a customer disputes your invoice
While the dispute is open
- Keep the invoice in the sales ledger. It is still a valid demand for payment until you agree otherwise, and the VAT on it was due when you issued it.
- Flag it as disputed. Most software has a status, note or “on hold” setting. Use it so the invoice drops out of automatic reminders and the credit control run.
- Record what is disputed and why: the amount, the reason given, who is dealing with it and the date of the next action.
- Chase the undisputed part. If the customer only disputes one line, ask in writing for the rest to be paid now.
This page deals with what happens in the books.
When it is settled
| Outcome | What to post |
|---|---|
| Customer accepts the invoice | Remove the flag; the invoice returns to normal credit control |
| You agree a reduction | Issue a credit note for the agreed amount, with the VAT element |
| The invoice was wrong (wrong price, wrong customer) | Issue a full credit note and a new, correct invoice |
| The customer will not pay and you will not pursue it | Write it off as a bad debt; see bad debts in the chart of accounts |
A credit note is the only correct way to reduce an invoice you have issued. It reduces your output VAT in the period the credit note is issued. Do not edit or delete an issued invoice, even if your software allows it: the VAT return it fell in has already used that figure, and your invoice numbering will have a gap. The credit note guide explains what it must show.
Short payments without agreement
Sometimes the customer simply pays less, without telling you why. Allocate what arrived to the invoice, leave the balance open, and ask for the reason. Do not post the difference to a discount account until you know what it is. The routine for this is in partial payments from customers.
When you hold a supplier payment
Put the invoice on hold, do not delete it
If a delivery was short, the work was poor or the price is wrong, enter the supplier invoice as normal and mark it on hold so it is excluded from payment runs. This keeps the true liability visible in your creditors and keeps the supplier statement reconcilable.
VAT: you can normally reclaim the input VAT on a valid VAT invoice you have received, even before you pay it. If the dispute ends with the supplier issuing a credit note, that credit note reduces your input VAT when you receive it. If you have reclaimed VAT on an invoice and still have not paid it six months after the payment was due, HMRC rules require you to repay that input VAT; check this for long-running disputes.
Tell the supplier in writing
Send a short note with the invoice number, the amount you are disputing, the reason and what you need from them: a credit note, a replacement delivery or a corrected invoice. Pay the undisputed part on the normal terms. That protects your relationship and your credit file, and it limits any claim for statutory late-payment interest to the disputed amount.
Closing the hold
| Outcome | What to post |
|---|---|
| Supplier issues a credit note | Enter the credit note and allocate it to the invoice; pay the balance |
| Supplier corrects and re-issues | Enter their credit note for the original, then the new invoice |
| You accept the invoice after all | Release the hold; it goes into the next payment run |
Never reduce a supplier invoice by entering a lower amount than printed. Your ledger and the supplier’s will no longer agree, and the next statement will show a difference nobody can explain.
Review open disputes monthly
At month end, list every invoice flagged as disputed or on hold, on both ledgers, with its age and owner. Anything older than 60 days needs a decision rather than another email. A dispute that survives to the year end also needs a judgement for the accounts: is the debt still recoverable, or is a provision needed?