What Everyone Should Know About Short Paying Invoices

We put up a new survey question on our Community page this week that asks accounts payable (AP) professionals to tell us what their policy is around short paying an AP invoice, and we hope you will take a second to answer it. We feel this is valuable data that we can use to devise a better AP automation solution for our clients.

As most AP professionals are aware, there are many circumstances (fees charged for late deliveries, damage to loads, advance fees, etc.) in which short paying an invoice (i.e., paying only a portion of the billed amount) is perfectly acceptable and even advised, but there is one best practice that absolutely needs to be followed.

As Accounts Payable Now & Tomorrow (APNT) advises, “when short paying an invoice, you should always communicate to the vendor, in as much detail as possible” the reason or reasons you aren’t paying the invoice in full. APNT concludes that while this won’t ensure that the vendor will agree or won't call to dispute the short payment, it will eliminate many needless calls.

Henry Ijams, Managing Director of PayStream Advisors, offers even greater insight into short pay best practices, saying: “Short paying invoices can lead to a messy AP process. Short paid invoices are the source of many recurring AP exceptions, debit memos, and unresolved AP exceptions. While it may be common to take a short pay without proper notification, doing so may actually create more pain than the short payment amount. 

“The proper way to manage a short payment is to provide clear communications of 1) short-payment details, 2) explanation of reason, and 3) contact party information for further communications. Ideally, the short payment details should be sent via email to the supplier customer care or order management group.”  

APNT strongly advises against short paying an invoice without an explanation. Ijams concurs and dives deeper into why doing so can create more problems than it solves and, as he alluded to earlier, it all comes down to exceptions. “PayStream’s benchmarking has identified short payments as a frequent cause of exceptions and a common pain for AP departments trying to drive out costly exception processing,” he says. “In one consumer products client, the cost of short payment resolution by AP and Shared Services staff was over $23.00 per invoice. Further analysis revealed that much of short payment activity was due to non-receipt of goods that had actually been received but not recorded.

“Due to the high costs, the client decided to require buyers to get the purchasing director’s approval on all short payments. Short payments can come back to the paying organization in many forms, including debit memo and re-invoices, which can create duplicate payments and difficult-to-reconcile payments. 

“PayStream recommends that short-pays always be preceded by a well-documented explanation. Due to the cost of managing short payments, no short payment should be initiated for anything less than $50.00.”

We invite you to answer the short pay survey question that is now live on our Community page, and we encourage you to send a message to info@DataServ.com if you have any questions about short pay best practices.