If you extend credit terms to business customers you’ll inevitably end up with plenty of reasons why customers can’t or won’t pay you on time. This paper is designed to help you eliminate the reasons why your customers won’t pay you on time and has suggestions and strategies for resolving and eliminating invoice disputes.

It’s your job as a credit and collection professional to ensure that your business is paid in a timely manner for the quality products or services you provide. You extend business credit terms as a benefit to your customers, and you deserve to be paid when you fulfill your obligation, by shipping the product or completing the service.


The key to resolving invoice disputes is to identify the dispute very early in the collections process. Too often businesses send out invoices, and they wait until the invoice is severely past due before they start calling to find out why they haven’t been paid.

There are basically two fundamental reasons why a customer hasn’t paid you on time. It’s either your fault that you did something (or didn’t do something) preventing them from paying you, or it’s something that they’ve done (or didn’t do) that is beyond your control.

In the majority of cases, the blame is solely on your business, and there are things you can do to avoid invoice disputes from ever happening. There are strategies that you can use to effectively resolve invoice disputes in the rare case that you’ve done everything right, and the customer is at fault.


Late payments and invoice disputes that may have caused the delayed payment can have a significant negative impact on a business. A study conducted in the United Kingdom in 2011 indicated 75% of small businesses were affected by long payment terms or late payments. The research further indicated that 50% of these companies spent 4-6 hours each week managing late accounts. Perhaps the most startling statistic in this study was the fact that 4,000 businesses failed in 2008 as a direct consequence of late payments.

Invoice Disputes delay payment. We know from our research that the longer an invoice goes unpaid – the less likely that it’ll ever be paid – or at least paid in full. Allowing an invoice to age to just 90 days means that you’ll be lucky to collect just 74% of the balance due; and forget about trying to collect on invoices older than 12 months – only 10% of these will be paid.

Late payments due to invoice disputes can have a significant impact on your cash flow. While A/R sits on your balance sheet as an asset, it does you no good whatsoever when you have no cash in the bank to pay your employees and your vendors.

Managing working capital is a foreign concept for too many businesses – especially smaller companies that lack the knowledge and the resources to do it right. The consequences can amount to significant erosion in profit margins due to costs of financing working capital through a financial institution when cash is unavailable to manage day-to-day business operations and expenses.

Further, businesses across industries write-off approximately 4% of credit sales annually. To put it in perspective – that’s $400,000 annually for a $10 million company. What if you could reduce bad debt write-offs by just 20%? That would equate to $80,000 in annual savings– every single year! And there are ways to save even more than $80,000 by eliminating paper and postage costs for electronic invoicing and avoiding financing costs for borrowing cash when you’re unable to collect on your accounts receivable and you need to make payroll or you want to make a large capital investment.


There is a science to sending proper invoices in order to avoid disputes altogether. If you check off all the boxes before the invoice is sent, it is likely that the invoice will never be in dispute. However, most businesses aren’t checking off all these boxes. In fact, most businesses don’t even realize that these invoice dispute hurdles exist. Avoiding these could be difference between receiving payment and not.


An interesting story by Kathy Hoffelder titled “Why Firms Don’t Pay Their Invoices” appeared July, 30 2013 on CFO.com. According to the story, one company, TermSync, conducted a study of 100 financial executives, and found that 49% cited ‘invalid or missing purchase order information’ as a reason for customers not paying their bills.

This is certainly a problem that could have been prevented. Depending on your accounting system, you may be able to configure the system to require a purchase order when entering an invoice for a particular customer. However, many entry-level and midmarket accounting and ERP systems simply don’t have this type of functionality.

As an alternative, you could implement a credit and collection system such as Lockstep Collect to notify you when an invoice for a customer is missing a purchase order number. Simply define an action for a customer (or group of customers) that checks to see if the customer requires a purchase order number and then checks to see if the invoice has a purchase order on it. If the invoice does not have a purchase order, the system can create an alert notifying you that you will have a problem getting payment, and you can address the issue very early in the process before the invoice is past due.


According to the CFO.com article, 11% of respondents claimed that they never received the invoice. This is also completely avoidable given today’s technology. Most accounting and ERP systems allow you to setup document transmittal to automatically email invoices to customers from the accounting system.

The problem is that some systems only support a single contact, and the invoice may be sent to the wrong person if the primary customer contact is not the accounts payable contact at your customer. A related problem occurs when a subsidiary purchases or approves your product or service order but a parent corporation is responsible for payment. In these situations you need to send the invoice to both the person who authorized the purchase as well as the person with the authority and responsibility to process the payment.

Further, you may want to send multiple copies of the invoice through different avenues for customers who frequently use the excuse that they didn’t receive the invoice. Systems like Lockstep Collect allow you to send invoices automatically to customers via email. You can also choose to print and mail invoices to certain customers. Further, you can setup customers with online access to a secure customer portal where they can get their invoices themselves. The system can even email them an encrypted hyperlink that takes them directly to their online account where they can review the invoice and make a payment online without having to log-in to the portal thus eliminating the inevitable excuse that they lost or forgot their user name and password.


Another reason that customers don’t pay on time is that they don’t get the invoice soon enough to process an ontime payment. This is especially true for most small businesses that process invoices less frequently than larger companies.

If you only send invoices out every two weeks and you extend NET 30 terms to your customers, they may receive the invoice with only one to two weeks before the due date depending on when the mail is received, who has to review and approve the invoice, and who has to process the payment.

Larger business customers often have highly segmented accounts payable departments, and the process of releasing payment could take several weeks. It’s critical that you send invoices to customers more frequently to ensure that you’ve done your part to ensure that they have adequate time to pay you before the due date.

While it may be unreasonable for you to process invoices every day, you can automate the invoice delivery by simply entering the invoices into the accounting system more frequently. Systems like Lockstep Collect can be configured to synchronize invoice information directly from your accounting system on a daily basis (or more frequently if needed). The system can also send PDF copies of invoices to customers via email if you simply print the invoice batch using specialized document management software such as Anytime Docs. Anytime Docs acts as a virtual printer but instead of creating a single PDF with multiple invoices, it creates separate PDF files – one per invoice in the batch. Lockstep Collect can then automatically transmit an email to the customer contacts with a PDF copy of the invoice, ensuring that they receive the invoice in time to process payment before the due date.


Another common reason why customers pay late is that you’re sending the invoices to the wrong person or to the wrong address. This happens all the time.

Consider that you’re selling a product or service to Bob. Bob authorized consulting services for you to help him implement his CRM system, but Bob’s in sales. While he authorized the purchase, he’s not responsible for processing the payment. In fact, Bob travels a lot sometimes spending months out of the office. Consequently, he may not know that your invoice is sitting on his desk at the office until well after the due date.

Is this Bob’s fault or your own fault? You could easily avoid this situation if you’d had simply asked him (and every other customer) who invoices should be sent to within his organization.

Another reason that customers pay late is because the invoice was sent to the wrong address. This could be a valid reason if you haven’t done business with a customer in awhile and they happened to have moved since the last time you sent an invoice. These situations will occur but are also avoidable. You may consider contacting every customer at least every few months to continue building your relationship with the accounts payable person.

You could also integrate your sales force into the credit and collections process, since the sales rep should be talking to your customers more frequently than your accounts receivable team. Lockstep Collect allows sales reps to access the system in a similar manner as your customers via a secured portal. Sales reps can review their assigned accounts and can make internal notes for the credit and collections team – such as notes on when a customer is planning to move and their new address. You may also fail to send the invoice to a customer if you rely too heavily on the internet to verify addresses, and you don’t have a formalized business credit application process. Far too often someone sells something to a customer and they get an address off of the corporate website not realizing that the address on the website is different than the billing address. Make sure that you talk to your customers and verify that the invoice is being sent to the right person at the right location, and you’ll alleviate a lot of headaches in the future.


Many companies use the invoice templates provided out-of-the-box by their accounting software publisher. While the accounting software may be just fine, most accounting systems provide notoriously bad templates for business forms such as invoices. Customers that struggle to understand your invoice will push it to the bottom of their pile and will pay other bills first before (eventually) calling you or waiting for you to call them.

It’s very easy for you to identify this problem if you simply talk to your customers, and ask them if they have any problems understanding your invoices, asking what you can do to make it easier to read and easier to understand.

Modifying your invoice templates should be very easy. In most cases you should be able to modify the templates yourself. If you need help, contact your accounting software publisher or your software reseller for assistance. You may also want to consider using multiple versions of the invoice template, as some customers may prefer a very simple format, while others may request a more complex format with more information that meets their specific needs.

Your job is to make it as easy as possible for your customers to understand your invoice so they can pay you on time. Making simple changes to invoice templates can go a long way toward reducing past due accounts receivable, while improving customer satisfaction and retention.


A TermSync study indicated that 27% of financial executives stated that customers didn’t pay on time because they either didn’t have the money or they were unable to contact the customer to resolve the issue. The study didn’t breakout these two distinct reasons for non-payment but we suspect that far fewer customers had cash flow problems than those who simply were not able to be contacted.

Our rationale for this thinking is that the study focused on larger companies where cash flow should be less of an issue than small or home based businesses or even smaller midmarket companies. Further, our experience is that businesses (regardless of size) fail to adequately staff their accounts receivable department and don’t have the right systems in place to effectively manage all of the calls and emails they should be making on past due receivables.

There simply is no excuse for failing to communicate with a customer that has a past due account. If you’re manually trying to manage the process, you’re wasting a lot of time. In fact, Paystream Advisors recently reported that companies that manually manage accounts receivable collections using spreadsheets, printed Aging Reports, and disparate systems are dramatically less effective in collections than companies that utilize automated systems like Lockstep Collect.

The Paystream research (see below) indicates that companies using automated collections systems spend 300% more time soliciting customers for payment because they waste less time preparing for the call, researching the invoice and customer information, and prioritizing their activities.

Systems like Lockstep Collect are specialized applications designed for accounts receivable professionals. They automate much of the mundane customer communications, freeing up time to make phone calls. The software also provides all of the information the collector needs in one system so they can review invoice information, customer information, contact information, communication history, and more without having to access multiple systems, and everything’s up-to-date and integrated with the backoffice accounting system.

Unlike CRM systems that allow you to document what you have done, Lockstep Collect includes a powerful rules engine that tells you what you need to do. You can setup the system to completely automate most (if not all) email communication.

Lockstep Collect can then be setup to prompt you to call all new customers so you can build a relationship and explain your credit policies. After all, most invoice issues occur the first time you invoice a new customer because something was setup wrong, such as missing purchase order, wrong address, incorrect billing rate, etc.

Credit and collection software like Lockstep Collect prioritizes your call list so you can focus on the most severe past due accounts and work your way down the list until you get to the least severe credit issues.

And unlike CRM systems, Lockstep Collect monitors this information and can notify you when the next step in the collection process should occur, with built-in capabilities to remove actions from your list if the customer pays in full. It can even escalate issues to senior-level managers if the issue reaches a critical level based on the amount past due, the days past due, or a combination of both.

With Lockstep Collect, you’ll have a lot more time to contact customers, minimizing the possibility that you simply can’t reach them in time to resolve the issue.


There are many other reasons why a customer may dispute an invoice that has nothing to do with the invoice itself. The TermSync study identified that 11% of invoice disputes are related to these types of issues which include broken or defective products, product non-conformity issues, disagreements around services, etc. Distributors and manufacturers can gain significant insight into product returns from their accounts receivable credit and collections management software.

Keeping track of each reason why a customer disputes an invoice can give insight into common problems. If they are often because of non-billing issues, it may be time for the company to look into and upgrade their manufacturing process.


The TermSync study referenced in this paper was specific to companies between $30 Million to $200 Million in revenue and on invoices more than 30 days past due and over $10,000. As such, it may not be statistically representative of all industries and invoices, but this research seemingly points out some major opportunities to improve accounts receivable collections that are completely within our control.

Make sure the invoice includes the correct customer purchase order number, and make sure that the customer receives the invoice. These two actions alone could potentially eliminate 60% of your late payments combined.

The goal to getting paid on time is to get the right information to the right person in the right format, and in time for them to make a payment as easily as possible. By preventing internal issues such as missing purchase orders or not sending invoices to customers, and by offering flexible payment methods to customers, you will certainly reduce invoice disputes and will get paid a lot faster than you ever imagined possible.

Analyze customer returns and seek ways to reduce returns as these add significant costs to your bottom line and barriers to retaining customers and growing sales.

Understand that it’s not your fault that a customer is experiencing cash flow problems. If you provide a quality product or service and graciously extend credit terms – it’s their responsibility to pay you on time. Sometimes you need to be flexible with your customers that are experiencing short-term cash flow problems, but in other cases you need to remain firm and continue to pursue every option you have to get paid. After all, there is a cost of cash, and every day that goes by it becomes less likely that you’ll ever see your money; which affects your own cash flow and profitability.

The financial supply chain is an interwoven system. The health of your customers will inevitably impact your financial health, so be proactive and work with your customers so you can succeed and grow together.


People want to be honest, but sometimes they avoid difficult questions and tell you what they think you want to hear instead of the truth? It happens all the time in business. Businesses are representative of the people they employ. A customer that is experiencing financial difficulties is unlikely to tell you that they’re getting ready for a second round of layoffs and they’ve cut back to one shift in production. Instead they say that business is great.

One of the nuances of credit and collections management is to identify underlying problems with your customers before they become major issues. Below are just three examples of things customers say or do and what this may really mean.

THEY SAY: “We paid within credit terms”

  • They know they didn’t pay on time but are unwilling to admit it.
  • Your invoice and terms are unclear to the customer and they really believe they paid you on time. Consider putting a due date on the invoice in addition to the invoice date and terms.
  • They mailed the payment on the due date expecting that your credit terms are flexible and allow for postal transit times.

THEY SAY: “We didn’t have enough time to process payment.”

  • The customer is right, and you didn’t send the invoice soon enough for them to pay you on time.
  • The customer agreed to shorter credit terms, but due to internal accounts payable processes or lack of organization they are unable to pay within the established terms.
  • The customer waited until the last minute or forgot to pay the invoice on time.
  • You don’t enforce your credit terms and the customer has learned that they can wait to pay you only when you call to ask for the payment.

THEY SAY: “We didn’t get the invoice?”

  • You forgot to enter the sales order or the invoice into the system and they truly didn’t get the invoice.
  • You entered the sales order or invoice in your accounting system but you failed to send it to them.
  • You sent them the invoice but it was lost somewhere between your office and theirs, or you sent it to the wrong person or the wrong address.
  • The invoice was received by the customer but was not delivered to your contact.
  • They received the invoice but misplaced it.
  • 6. They received the invoice but are lying about not having it.


As mentioned earlier, a $10 million company should save $80,000 annually by reducing bad debt write-offs alone. What could you do with that kind of money? Below are a few suggestions, but it’s your money so spend it however you wish.

  • CHARITABLE DONATIONS: Donate the money to your favorite charity, and make a difference for someone that is struggling. According to non-profit Save the Children, $80,000 would provide basic needs for nearly 240 children in third world countries for an entire year!
  • EMPLOYEE BONUS: Give your employees a bonus for a job well-done and retain your top talent. If you only employ 80 people they could all get a $1,000 bonus. Now wouldn’t that be nice?
  • LOWER PRICES: Saving $80,000 could allow you to reduce or at least freeze your customer pricing. While this may not mean much in the grand scheme of things – lowering pricing by just a few cents could mean the difference between winning and losing a deal – especially in distribution and other industries with very low margins and significant global competition.
  • CAPITAL INVESTMENTS: What capital investments could you make to improve your business? For $80,000 you could make some significant improvements to your accounting or ERP business software. You could purchase a new piece of equipment or a new delivery truck. You could upgrade your computers and infrastructure. And $80,000 would make a nice down payment to expand your facility or to move into a better building
  • KEEP IT: That’s right. If you’re the business owner you could keep this money for yourself and buy that tricked-out hot rod you’ve always wanted. Or maybe you’d rather invest in a modest sized yacht. You could pay-off your child’s college bill or send them to a better school. Or you could take a month and travel the world snorkeling in Tahiti, climbing Mt. Kilimanjaro, and relaxing at the swankiest all-inclusive spas in the world.


Invoice disputes often end up as bad debt write-offs and have a significant effect on your cash flow. Accounts receivable is likely your single largest asset and the most critical to your working capital. In most cases you can avoid invoice disputes if you fix internal problems – such as sending the invoice on time, make sure the invoice is correct and not missing critical information, and making sure the customer can easily understand the invoice and the payment terms.

You stand to increase profits significantly by eliminating invoice disputes and managing them effectively. The money you’ll save can be used to grow your business by keeping prices lower than your competition or investing in personnel or capital equipment.

There are simple things you can do to avoid invoice disputes. An automated credit and collection system like Lockstep Collect can provide even more savings through automation while providing a centralized system to manage disputes with escalation to management when needed. Contact us to learn more about Lockstep Collect and how we can help you eradicate invoice disputes.