How to deal with a disputed invoice: 5 options for small businesses in 2025

“I have a problem with this invoice.”

That dreaded email: 'I have a problem with this invoice.' Every small business owner dreads hearing those words. Invoice disputes are an unfortunate reality, but they don't have to derail your business. This guide provides 5 proven strategies for resolving invoice disputes efficiently, protecting your cash flow, and maintaining positive customer relationships even when faced with customer payment disagreements.

Jump to:

•  5 ways to deal with a disputed invoice
• 5 common reasons for invoice disputes in small businesses

• Invoice disputes and their impact on small businesses
• Contracts and invoice disputes: What you need to know
• How long does a customer have to dispute an invoice?

• 7 ways to avoid disputes
• Don’t ignore disputed invoices

5 ways to deal with a disputed invoice

Disputed invoices can be a frustrating part of doing business. It’s tempting to get defensive when a customer disputes an invoice, but before you do, remember it’s your customer. You need customers to run a successful business, so you don’t want to burn bridges. The key is to balance firm but fair communication and have a willingness to find a resolution that works for you and your customer.

Let’s explore five practical ways to handle a disputed invoice.

1. Ask questions and investigate

Start by understanding the customer’s perspective. Ask clarifying questions to fully understand the nature of the dispute and investigate internally to see if any invoicing errors occurred.

It is not unusual for an invoice dispute to start with an innocent, unintentional error. Errors happen. Decimal points get misplaced, the wrong product ships, the list goes on. When it happens to you, correct the invoice, apologize, and make it right: a quick and simple resolution.

But genuine errors don’t typically lead to drawn-out disputes. Your investigation may uncover that your customer is wrong. Now what? Again, don’t jump to defensiveness, but see if you can amicably reach a resolution.

2. Help the customer understand they’re mistaken

If the customer is in the wrong, don’t start accusing. Help the misguided customer understand why they’re wrong. A noncombative strategy includes a question-first approach. Ask the customer if they still have the quote or other supporting documentation. Ask them to review the quote, and compare it to the invoice. Guide your customer through their own actions so hopefully the customer can uncover their own mistake.

If a customer can admit their own error, great. But what if there’s an error on both sides? Or, what if there’s no obvious error and the dispute is questioned from both sides? That’s when you look for middle ground.

3. Propose a mutually beneficial invoice dispute resolution

Genuine misunderstandings are a business reality. You thought the customer agreed to X, but the customer thought they agreed to Y. You deliver the invoice for X, and the customer starts a dispute.

Now what?

Again, don’t get defensive. There’s a relationship to protect. But don’t concede to every customer demand. You have a business to protect. Look for some middle ground. Propose the following question to yourself: What is mutually beneficial to both parties?

Mull over potential answers to that question. Run those answers by some colleagues. Think about it from the customer’s perspective, and then refine your proposal. Once you’ve landed on a proposal that benefits both sides, propose it to the customer. Don’t present it as take it or leave it, but as an option. You might even improve your relationship with responsiveness and flexibility. But the customer might push back. Listen to them and work toward a compromise that works for both parties.

Compromise is great when it works. But compromise takes cooperation from both sides. If you have a customer who won’t budge, you may have to start taking a harder stance.

4. Consider escalation

Escalating is the first of the five steps that includes you taking the position that the customer is wrong, and you aren’t willing to back away from that conclusion. “The customer is always right” has never been a true statement when it comes to getting paid. But escalating doesn’t mean shutting the customer down completely and jumping to your legal rights. It means considering what can be done to appease the customer without adjusting the invoice in dispute.

Escalating may mean getting creative, or literally advancing the dispute through your internal hierarchy. On the creative side, you could offer the customer a future benefit in exchange for the customer dropping the current dispute and paying the invoice. On the literal side, you may need to bring the issue up through your chain of command.

The key to effectively escalating is communicating the escalation to your customer. It shows that you are taking the dispute seriously. You aren’t conceding to the customer’s point of view, but you are including all potential stakeholders in the decision-making process. Even if you can’t reach a meeting of the minds with your customer, escalation shows that you will exhaust all available resources to reach a resolution. Failed attempts to escalate are still meaningful to your customers.

5. Enforce your legal rights

Unfortunately, some disputed invoices require you to enforce your legal rights. When you reach an impasse and your customer refuses to pay, it’s time to get third parties involved.

When you make the decision to take legal action, start with the contract. Follow any required procedures in the invoice dispute or general dispute section. If your customer is afforded a “cure period,” which is just a term for correcting a breach of contract, give the customer a chance to cure. Make sure you read this provision closely because it most likely requires you to give written notice to the customer that they’ve done something wrong (for example, failed to pay an invoice by its due date). If the cure period comes and goes (perhaps after 30 days), continue to follow the contractual procedure for enforcing legal rights. Contracts often include provisions regarding which courts you can file suit in and whether mediation is required before filing a suit. You need to follow each step carefully or you risk being in breach of the contract or having your claim thrown out of court on a technicality.

It’s possible to file a lawsuit without the assistance of an attorney, but it isn’t recommended. An attorney will help you review the relevant contract provisions, and make sure you haven’t missed any of the contractual requirements. If there are no contracts in place or there are potentially conflicting contracts (such as the customer’s purchase terms and conditions and your invoice terms and conditions), an attorney will help you navigate the situation.

If you opt for an attorney, make sure you understand the billing model before engaging. You don’t want to file a lawsuit only to pay more in legal fees than you recover.

5 common reasons for invoice disputes in small businesses

Invoice disputes often happen because of miscommunication or simple mistakes. If an invoice isn’t clear, a customer may question the charges, For example, if a business adds an extra fee that wasn’t discussed upfront, the customer might dispute it, causing a payment delay and potentially starting the business relationship. 

Let’s look at the five most common reasons for invoice disputes to help you prevent these issues.

1. Errors on the invoice

These invoice discrepancies can be mistakes such as incorrect calculations, wrong item descriptions, or mismatched totals. 

• Example: You accidentally billed a customer for 12 items instead of the 10. When they notice the discrepancy, they dispute the invoice to correct the overcharge.

2. Unclear payment terms and conditions

Customers might raise concerns if payment terms, due dates, or other conditions aren’t crystal clear.

• Example: Your invoice states “Net 30” payment terms, but the customer assumed it was “Net 45” based on prior communication or a misunderstanding of the contract. This lack of clarity can easily lead to a dispute.

3. Service or product delivery issues 

If what you delivered doesn’t match what the customer expected—whether it’s the wrong quantity, quality, or timeline—they may hold off on paying, leading to a disputed invoice.

• Example: A customer orders 100 custom-printed T-shirts, but 10 of them have the wrong design. They dispute the portion of the invoice that covers the incorrect items.

4. Unexpected fees and charges

Unexpected fees or costs that weren’t discussed upfront can frustrate customers and lead to payment disputes.

• Example: You add a $50 rush fee to an invoice for expedited shipping, but the customer wasn’t informed about the extra cost. They dispute the charge, claiming it wasn’t agreed upon.

5. Ambiguous contract terms

Sometimes, there’s no clear contract, or both sides interpret the agreement differently, which can lead to misunderstandings about what’s actually owed and ultimately a disputed invoice..

• Example: The contract says the project will cost a flat rate, but your invoice includes extra charges for additional hours of work. The customer pushes back by saying the flat fee should cover everything.

Understanding customer reactions to invoice disputes

Customers react in a variety of ways when they need to dispute an invoice. The customer may make a partial payment of the undisputed amount on time and exclude the disputed amount. On the opposite end of the spectrum, the customer may refuse to pay anything until the entire dispute is resolved, which may leave you with a cash flow shortage.

How should a customer bring up a disputed invoice? More importantly for you and your business, how should you respond to a customer’s dispute? Before getting into best practices, it helps to understand each party’s legal rights.

Invoice disputes and their impact on small businesses

Invoice disputes may feel like small bumps in the road, but for small businesses, they can have a big impact. 

When a customer questions or delays payment, it can throw off your cash flow, which can make it harder for you to pay bills, meet payroll, or invest in growth. In fact, according to an article from PYMNTS, 22% of small businesses find it difficult to pay bills due to cash flow problems, and 45% of small business owners forgo their own paycheck due to cash flow shortages.

Beyond the financial hit, disputes can also strain your relationship with customers. Misunderstandings about invoices can leave both sides feeling frustrated, which can damage trust and make it harder to work together in the future.

On top of that, resolving disputes takes time. You might have to dig through contracts, respond to back-and-forth emails, or even involve a lawyer, all of which can be draining and expensive.

Contracts and invoice disputes: What you need to know

To understand your rights regarding disputed invoices, you need to look at the contract between you and your customer.

What is the contract between you and your customer?

There is an obvious answer to this question if you negotiated a formal agreement with your customer. Examples include a services agreement, supply agreement, distribution agreement, and purchase agreement.

What if you didn’t make a formal contract?

In this case, start looking at the transactional documents between you and your customer. Do your customers’ purchase orders include terms and conditions? Do the invoices you send customers have terms and conditions or terms of sale attached? Do you require customers to agree to basic terms and conditions to set up an account with your business? Even if you didn’t negotiate a long, formal contract with your customer, there’s probably some terms and conditions somewhere.

If there is a contract of some sort between you and your customer, there’s likely some language that specifically addresses invoices:

• Payment terms
• Payment methods
• Currency
• Discounts
• Invoice dispute methods

It’s in this section of your contractual language that you will find how to handle an invoice dispute. Typically, invoice dispute language will lay out a simple procedure to follow in the event that an invoice dispute arises. Common invoice dispute contractual procedures include:

• Formal notice of dispute
• Detailed description of the cause of the dispute
• Required payment of the undisputed amount

Look for general dispute clauses

If you don’t see any mention of invoice disputes in the legal documents between you and your customer, don’t stop there. The next place to look is in the general dispute clauses. These are frequently buried at the bottom of contracts under a miscellaneous section. The general dispute clause won’t specifically mention invoices; rather, it describes the procedures to follow for any dispute between the parties.

What if there’s no contract or terms?

Contract law typically governs invoice disputes, but it varies by location. Without a contract in place explicitly addressing how invoice disputes should be handled, contract law applies general legal concepts to the invoice dispute. For example, contract law will look at the purchase order against the invoice. Certainly, both of these documents include a product or service and a price. They most likely include a payment term, a shipping term, and a few other common elements. 

If you find no formal contract, no terms and conditions attached to a purchase order or invoice, nor anything else that contains legalese, then look to the invoice itself and the law.

How contract law handles disputes

Contract law first directs the parties to take each of these documents at face value. Do they agree or conflict? If the invoice dispute falls outside the basic elements of a purchase order and invoice, contract law then looks at supplemental evidence, such as how the parties have historically transacted business, standard industry practices, and what promises they made during the negotiation.

This may sound like a reasonable approach to resolving an invoice dispute. However, if you are relying on contract law to resolve an invoice dispute with your customer, it most likely means you are in court, or at least mediation. Court cases and mediation are expensive, and it often means the relationship with your customer is ruined.

Avoiding court battles

To avoid letting a court decide your invoice dispute, make sure to have some basic invoice terms contractually agreed to with your customers before you start business. It could be a formal supply or services agreement, or it might be something as simple as purchase order terms and conditions. Short and simple or long and negotiated, the best way to avoid a legal battle with your customer over an invoice dispute is to get a contract in place before a dispute arises.

How long does a customer have to dispute an invoice?

The amount of time a customer has to dispute an invoice depends on the legal relationship between the parties and the specific terms outlines in your contract. Again, take a look at the legal documents that govern transactions between the parties. Standard invoice dispute contractual language commonly addresses how to dispute an invoice and will help you understand how long a dispute could last.

If your current contracts or terms and conditions don’t mention invoice dispute procedures, it’s a good time to add them. If you add invoice dispute procedures into your terms and conditions before disputes arise, you can manage an invoice dispute on your terms. Here are some best practices for drafting invoice dispute provisions into your contracts and terms and conditions:

• Be clear: If a customer needs to dispute an invoice, how should the customer bring it to your attention?
• Use a time limit: Expressly state that if a customer doesn’t dispute an invoice in a certain number of calendar days, the invoice is considered accepted by the customer.
• Define a process: How would you like to receive notice of an invoice dispute (email, mail, contact name)?
• Limit the impact: Make sure that customers are required to pay all undisputed invoices during the dispute. If customers feel the need to dispute an invoice with your company, they may think it strategic to withhold all payment to your company until the dispute is resolved. Be clear in your contracts that nonpayment is not permissible. Limit the unpaid amounts to the disputed invoice only, and only the portion of that invoice that’s in dispute. If 95% of a single invoice is correct and undisputed, only 5% of that invoice should go unpaid until the dispute is resolved.

If you don’t include a time limit for invoice disputes, contract law determines the time limit through the applicable statute of limitations in your jurisdiction. You don’t want this. The specific time depends on your location, but understand that it will be years, not weeks or months. If you don't have a contract, invoice dispute laws in your jurisdiction will apply.

7 ways to avoid disputes

Let’s look at some ways you can avoid these issues before they happen.

1. Use clear, detailed contracts

A solid contract sets the foundation for a smooth working relationship. Be specific about what you’re providing, when you’ll deliver it, how much it will cost, and when payment is due. It’s also a good idea to outline what happens if there is a dispute, so both sides know the process upfront. Take the time to go over the terms together with your customer and ensure everyone is on the same page before the work begins.

2. Set transparent payment terms

Be clear and upfront about how and when you expect to be paid. Let your customer know the due dates and the payment methods you accept. If you charge late fees, make sure to outline those as well.

3. Communicate expectations early

To avoid surprises later, have an open conversation with your customer at the start. Go over the project details, costs, and timelines so everyone knows what to expect. Sharing a clear quote or estimate can help ensure you’re both on the same page from the very beginning.

4. Provide accurate, detailed invoices

Take a moment to double-check your invoices before you send them out so everything is correct and easy to understand. Include details like itemized charges, due dates, and any relevant purchase order numbers.

5. Attach supporting documentation

Whenever possible, include relevant documents with your invoice. Contracts, delivery confirmations, work orders, or receipts can help back up your charges and make it easier for your customers to understand what they’re paying for.

6. Stay consistent with communication

Open and regular communication can prevent small issues from turning into big problems, so keep your customers in the loop every step of the way. Share updates about project progress, notify them of any delays, and address questions or concerns as they come up.

7. Use invoicing software

Invoicing software can automate your billing process. Tools like QuickBooks help you create professional invoices, track payments, and send automatic reminders for overdue accounts. It also keeps all your records in one place, so it makes it easier to sort out any disputes if they occur.

Don’t ignore disputed invoices

Resolving invoice disputes is part of managing your accounts payable. Despite the challenges of dealing with late payments, there may be temptation to ignore disputed invoices for fear of ruining a customer relationship. Don’t give into this temptation.

A disputed invoice doesn’t necessarily mean you will lose a customer. In fact, it might be an opportunity to strengthen your customer relationship depending on how you follow up. When an invoice dispute arises, address it quickly and with an open mind using the five options above. For the sake of your business and the customer relationship, take the lead in resolving invoice disputes.

Need a better way to manage invoices and reduce disputes? Learn more about QuickBooks invoicing features to create clear, professional invoices and streamline your payment process.