What is Short Payment?
A short payment is when a client pays less than the invoice total. Learn how to handle short payments professionally, record them correctly, and prevent them from becoming a pattern.
A short payment is less than the full amount invoiced.
A customer makes a short payment when the amount received is below the invoice balance. The difference may come from a dispute, deduction, fee, withholding, credit, bank charge, or simple mistake and should be reconciled before closing the invoice.
What Is a Short Payment?
A short payment occurs when a client sends a payment that is less than the total amount invoiced, leaving a remaining balance due. The difference between the invoiced amount and the payment received is the "short amount." Short payments are one of the most common friction points in B2B invoicing. They can result from: - A client disputing part of an invoice (scope disagreement, quality issue, deliverable question) - A client unilaterally withholding a "convenience" deduction (e.g., "we always take 2% for ACH processing") - A client who made a calculation error or whose AP system processed the wrong amount - A client who applied a credit memo incorrectly, double-counting a reduction - A currency conversion discrepancy in international payments (bank fees deducted en route) - A client's AP system only processing what matched a purchase order, ignoring additional line items How you handle short payments matters enormously. The wrong response—either aggressive confrontation or passive silence—can damage a client relationship or enable a pattern of chronic short payments that silently erodes your revenue over time.
Short Payment vs. Partial Payment
These terms are often used interchangeably, but they have slightly different connotations: | Term | Implication | |---|---| | Partial Payment | Neutral—any payment less than the invoice total, agreed or not | | Short Payment | Implies the client shorted the invoice unilaterally, expected or unexpected | | Underpayment | Formal term for a payment less than the amount due | In practice: a client who pays 50% upfront on a milestone-based project is making a partial payment you've agreed to. A client who receives a $10,000 invoice and pays $9,500 without explanation is making a short payment—even if the reason turns out to be innocent (like a wire fee deduction). The term covers both intentional deductions and unintentional shortfalls.
How to Handle Short Payments — Step by Step
Step 1: Do NOT Mark the Invoice as Paid This is the most common mistake. If you mark a $10,000 invoice as paid when you received only $8,000, your AR report will be wrong, your reconciliation will be off, and you'll lose the paper trail needed to resolve the shortfall. Never close an invoice that hasn't been paid in full. Step 2: Apply the Partial Payment Correctly In your accounting system, apply the partial payment to the invoice: `` Cash (Dr.) $8,000 Accounts Receivable (Cr.) $10,000 [leaving $2,000 open AR balance] `` The invoice now shows: Paid = $8,000 | Outstanding = $2,000 | Status = Partially Paid. Step 3: Contact the Client Within 24-48 Hours Don't be aggressive—this could be an administrative error. But don't wait. Reach out promptly: > "Hi [Name], I received your payment of $8,000 for Invoice #[X] dated [date]. The invoice total is $10,000. Can you help me understand the $2,000 difference? I want to make sure our records are accurate and the remaining balance gets resolved promptly." A calm, factual inquiry is almost always more effective than a confrontational demand. It gives the client room to identify an error without feeling accused. Step 4: Document Everything Keep detailed records of: - The original invoice and payment terms - The payment received, date, and method - All communications about the shortfall - Any agreement or disagreement about the amount - Credit memos or adjustments issued as part of the resolution This documentation protects you if the dispute escalates and gives you evidence of a pattern if the client is a repeat short-payer. Step 5: Resolve or Escalate Depending on the client's response: If the client acknowledges an error: Request immediate payment of the balance or issue a credit memo if there's a valid deduction. Update your accounting records to reflect the resolution. If the client disputes part of the invoice: Attempt to resolve the dispute by referencing the original scope, signed agreements, and any approvals. If you can't resolve it informally, follow your contract's dispute resolution clause—typically written notice, followed by mediation, followed by arbitration or litigation. If the client is taking an unauthorized deduction: Politely but firmly decline. Reference the contract terms and payment agreement. State clearly that unauthorized deductions are not accepted. If they persist across multiple invoices, this is a serious red flag for the relationship.
Common Reasons for Short Payments
1. Administrative Errors - Client's AP system only processed what was in the original PO (line items added later weren't captured) - Bank fees deducted before receipt (particularly common with international SWIFT transfers) - Currency conversion discrepancy: client paid the invoice amount in their currency, but conversion rates produced a shortfall in your currency - Miscalculation of the amount owed Fix: Proactively share complete invoice details and verify that your banking information (routing number, SWIFT code, IBAN) is correct. For international payments, specify in your payment terms whether fees should be paid by sender (OUR) or shared (SHA) — this determines who absorbs SWIFT correspondent bank fees. 2. Disputes Over Scope or Quality - Client claims the work was not completed as specified in the SOW - Deliverables don't match expectations or contract terms - Quality concerns about the work product - A scope item was completed differently than expected Fix: Reference the original scope of work, contract, and any written approvals or sign-offs. Clear project scope documentation, milestone sign-off emails, and acceptance confirmations prevent most of these disputes. Prevention is far better than resolution. 3. Unauthorized "Standard" Deductions - "We take 2% for early payment" (when you didn't offer an early payment discount) - "We deduct retainage on all contractor invoices" (not in your contract) - Client imposing withholding that isn't agreed upon Fix: This is a red flag. Politely decline and reference the payment terms in your contract or invoice. If the client insists, document the dispute in writing and consider whether this is a relationship you want to continue. Clients who unilaterally impose deductions are likely to continue doing so unless firmly corrected. 4. Credit Memos Misapplied - Client applied a credit memo but calculated the offset incorrectly - Credit memo was issued but AP didn't process it before the payment run - A credit from a previous period was applied to the wrong invoice Fix: Provide clear, numbered references on all credit memos. When issuing a credit, send it with explicit instructions on which invoice(s) it applies to. Follow up with the client's AP team to confirm the credit has been processed before the next payment is due. 5. Retainage or Holdbacks - In construction and some project-based work, clients legitimately withhold a percentage (typically 5-10%) until project completion - If retainage isn't in your contract, any withholding is unauthorized Fix: Ensure retainage terms are explicitly stated in the contract before work begins. Track retainage amounts separately in your AR system so you know exactly what's being held and when it's due.
Preventing Short Payments
1. Clear Payment Terms on Every Invoice State explicitly and prominently: - Exact payment amount due - Due date (not just "Net 30" — include the specific date) - Accepted payment methods with full banking details - Late fee policy and the rate at which it applies - Any applicable credit memo references and their amounts 2. Require PO Numbers on Invoices If clients require PO numbers to process payments, include them on every invoice. Invoices without matching PO numbers commonly get stuck in AP queues or processed for only the PO amount. 3. Get Payment Terms in Writing Before Starting Before any project begins, confirm payment terms in a signed contract or statement of work. Verbal agreements about deductions, retainage, or withholding are effectively unenforceable. 4. Send Pre-Payment Summaries for Large Invoices For invoices over $5,000, consider sending a payment summary 5-7 days before the due date that clearly states the amount due, payment methods, and banking details. This gives the client's AP team time to confirm details before processing—reducing errors. 5. Address the Pattern Proactively If a specific client has a history of short payments, address it directly before the next invoice cycle: "I've noticed the last two payments from your team were short by small amounts. I want to make sure our payment process is working correctly for you — would it help to set up a call with your AP team to review the invoice format and payment instructions?" 6. Use Escrow for Large, New Engagements For projects over $10,000 with a new client you don't know well, consider using a third-party escrow service where the client deposits funds before work begins. This eliminates the risk of short payment or non-payment on large projects.
Short Payment Documentation Template
When documenting a short payment dispute: `` SHORT PAYMENT NOTICE ======================== Invoice Number: [INV-XXX] Invoice Date: [DATE] Invoice Amount: $[AMOUNT] Payment Received: $[AMOUNT] Short Amount: $[AMOUNT] Date Payment Received: [DATE] Reason Claimed by Client: [CLIENT'S EXPLANATION] Our Response: [YOUR POSITION] Agreement Reached: [RESOLUTION OR "PENDING"] Date Resolved: [DATE] Status: [RESOLVED / PENDING / ESCALATED] ``
The Bottom Line
Short payments are an unavoidable reality in B2B invoicing. Your response determines whether they become a chronic revenue drain or a one-time issue quickly resolved. The key principles: never mark an invoice as fully paid if it wasn't, contact the client promptly, document everything, and address unauthorized deductions firmly without being combative. Prevention—clear terms, correct invoicing, PO matching, and proactive communication—is far easier than collection. But when short payments occur despite best practices, a systematic, professional response process protects both the relationship and your revenue. Key Takeaways: 1. Never mark a short-paid invoice as paid in full—the balance stays open in AR 2. Contact the client within 24-48 hours of identifying the shortfall, calmly and factually 3. Short payments can be legitimate disputes or unauthorized deductions—handle each appropriately 4. Document all short payment issues to identify patterns and build your case if escalation is needed 5. Prevention: clear payment terms, PO matching, proactive pre-payment summaries, and documented scope sign-offs Want invoices that are clear, professional, and hard to dispute? Try Eonebill Free View Pricing → | Glossary Home → | Home →