Short Payment

What is a short payment?

A short payment, also called a short pay or an underpayment, is a payment for less than the amount invoiced, which leaves a balance open on the invoice. The term says nothing about who is at fault.

The customer may be right, because they took a discount your terms allow or returned part of the order. They may be wrong, because they took a discount they had not earned. Either way the invoice is now short paid, and the difference stays on your books until you decide what it is.

How to record one, find the reason and recover the balance is covered in short payment: what to do when a customer pays less.

How is a short payment different from similar terms?

A short payment is a shortfall on one invoice that was not planned as a part payment. A deduction is one kind of short payment; a partial payment, a late payment and an overpayment are different events.

• Partial payment: a smaller amount agreed in advance, such as an installment or a deposit, which the invoice was always going to receive in pieces. See partial payment reconciliation.
• Deduction: a short payment the customer makes on purpose, often with a reason code on the remittance advice, for a return, a shortage or a promotional allowance.
• Late payment: the full amount arrives, but after the due date. A short payment can also be late, and then the balance is both short and overdue.
• Overpayment: the opposite case, where the customer pays more than the invoice and you hold a credit or refund the difference.

What does a short payment look like in the books?

The invoice stays open for the difference until a second payment, a credit note or a write-off clears it. When you record the part payment, the outstanding amount still shows on the invoice.

If the customer was right, a credit memo or credit note reduces what they owe and closes the invoice. If the balance will never be paid, it becomes a write-off; see write-offs.

Until one of those happens, the unpaid part keeps counting toward days sales outstanding, because the invoice is still open and still aging.

Why do short payments happen?

Short payments have valid reasons (a discount your terms allow, damaged or missing goods, a wrong price or tax on the invoice) and invalid ones (a bank fee, an unearned discount, a customer short of cash).

When the reason is a disagreement about what was delivered or what it should cost, the short payment becomes a dispute. The process for that sits under dispute management, and the question a customer raises before paying sits under invoice query management.

Frequently asked questions

What does short paid mean?

Short paid describes an invoice that received a payment smaller than its total. The customer paid, but a balance remains open, and the invoice is not settled until that balance is paid, credited or written off.

Is a short payment a debt?

It can be. If the invoice was correct, the unpaid balance is still owed until it is paid, settled or written off. If the customer was right, a credit note removes it.