Payments arrive that do not match the invoice more often than anyone expects. Usually it is innocent: a transfer fee, a rounding, a customer paying two invoices as one figure, or somebody typing the wrong number.
What matters is that your paperwork ends up agreeing with theirs.
First, work out what happened
Before doing anything, check the obvious causes:
- Was a bank charge deducted in transit? Common on cross border transfers.
- Did they pay several invoices in one payment?
- Did they apply a deposit you had already deducted?
- Did they pay a different invoice by mistake?
- Is there a query attached that you have not heard about yet?
A five minute check saves an email that turns out to be wrong. Invoicing in another currency covers the transfer fee case, which catches out most people the first time.
Underpayment: issue a receipt, keep the balance visible
Receipt the amount that actually arrived, not the amount you invoiced. A receipt is a record of money received, and a receipt for money you did not receive is a false document.
Received from Acme Ltd
Against Invoice INV-0087
Amount received 84,000
Invoice total 108,000
Balance remaining 24,000The invoice stays open for the balance. Show it on the next statement of account so it does not quietly disappear. How to write a receipt covers the fields.
Small shortfalls
Decide a threshold and stop thinking about it. Under a few hundred, many businesses write it off rather than spending twenty minutes chasing it.
If you do write it off, do it on paper with a small credit note rather than leaving a permanent open balance nobody intends to collect. Otherwise your statement carries a list of tiny amounts forever.
Overpayment: do not just keep it
Three options, and the customer chooses, not you:
- Refund it.
- Hold it against the next invoice.
- Split it, if there is a next job but not soon.
Ask. Holding money without agreement is how a small administrative event becomes a complaint.
Show a credit balance properly
If you hold a credit, the sheet shows it as a negative balance rather than pretending it is nothing. An invoice with more paid than owed reads:
Total 108,000
Amount paid 158,000
Balance due − 50,000That minus sign is doing real work. It tells the reader the money is owed to them, not by them, and it is the difference between a clear document and a confusing one.
Payments against several invoices
If one payment covers three invoices, receipt it once and say which invoices it settles.
Received 252,000
Applied to INV-0084 84,000
INV-0086 60,000
INV-0087 108,000Without the allocation, the customer’s ledger and yours will drift apart within a month. Open item or balance forward covers the two ways of tracking this.
Unallocated payments
A payment matching no invoice is the worst kind, because it will sit unexplained until somebody reconstructs the month.
Ask immediately. The person who sent it knows today and will not in six weeks.
Reconcile monthly, not annually
A short monthly pass over what was invoiced against what arrived catches all of this while it is still solvable. Getting paid on time covers the follow-up, and organising your invoice files covers having the records to do it with.
Bank charges on international transfers
The most frequent innocent cause, and the one worth understanding once.
An international transfer can be sent with charges shared, or borne by the sender, or deducted from the amount in transit. Under the last of these, the customer sends the full invoice amount in good faith and you receive less, sometimes noticeably less.
Say which you expect on the invoice:
“Please send by transfer with all charges paid by the sender, so the full invoice amount is received.”
Invoicing a client in another currency covers the exchange rate side of the same problem.
Exchange rate differences
Where you invoice in one currency and are paid in another, the amount received will rarely match exactly, because the rate moved between invoice and payment.
Decide a tolerance and stop reconciling below it. Small differences are a cost of trading internationally, not an underpayment, and chasing them is expensive in a way that does not show up anywhere.
Duplicate payments
Less common than underpayment and more urgent, because the customer usually has not noticed yet.
Tell them the same day. A business that reports a duplicate before the customer finds it is a business that gets called again, and the alternative is discovering it together in three months under much worse circumstances.
Write down how you allocate
If a payment covers part of several invoices, the allocation is a decision and it should be recorded rather than assumed.
Oldest first is the usual convention and a reasonable default. What matters is that you apply the same rule every time, so your ledger and theirs stay reconcilable. Open item or balance forward covers how the statement shows it.
Never adjust the invoice to match the payment
Tempting, and it hides the problem rather than solving it. The invoice is a record of what was charged; the receipt is a record of what was paid. When those two differ, the difference is the information.
Editing the invoice down to match a short payment destroys the only evidence that anything was outstanding.
Get the receipt out
Whatever arrived, receipt it the same week. Open the receipt maker, record the actual amount, and the balance takes care of itself.