Partial payment: what to do when a customer pays part of an invoice

Short payments fall into a few groups. Knowing which one you have decides your next step.

• A deduction. The customer took off a discount, a fee, a retention amount or a charge they believe you owe them. Sometimes it is right. Sometimes it is an early payment discount they did not earn.
• A dispute on one line. They accept most of the invoice but question one item, so they pay the rest and hold that line.
• Cash flow. They pay what they can now and the rest later. This is the case most likely to drag on.
• A process issue or error. The payment was matched to the wrong invoice, an old amount was paid, or a bank fee came off a wire transfer.

Do not send a standard reminder for the balance yet. Find out which of the cases above you are dealing with.

1. Check the remittance advice. It should list which invoices a payment covers and any deductions. If none arrived, ask for it. See our guide to remittance advice.
2. Compare it with the invoice. Is the gap a round number, a percentage, or a single line?
3. Check your own records. Did you agree a discount, issue a credit memo, or send a revised quote?
4. Ask a short, specific question. "We received $3,000 against invoice 1042 for $4,200. Could you tell us what the $1,200 difference relates to?"

If the answer is a dispute, handle it as one. Our guide to invoice disputes covers how to resolve a query on one line without holding up the rest.

Record the money against the original invoice, not as a separate unapplied receipt. QuickBooks and Xero both let you enter a payment for less than the invoice total, and the invoice then shows as partly paid with the remaining balance still open.

Say a design studio invoices $4,200 and receives $3,000. The invoice stays open with $1,200 due. The original due date still applies to that balance unless you agree a new one.

A few rules keep the books clean:

• Do not write off the difference straight away. Reduce the invoice only once you accept the deduction, using a credit memo so the reason is on record.
• Do not raise a new invoice for the balance. It breaks the link to the original.
• Keep the aging honest. The balance ages from the original due date, as your accounts receivable aging report should show.
• Note the reason, so whoever follows up next knows the history.

Usually not. In most ordinary cases, banking part of what you are owed does not cancel your right to the remainder. There is one important exception in the US, and it catches people out.

This is general information about US law, not legal advice. Talk to a lawyer about a specific case.

"Payment in full" checks and accord and satisfaction

Under section 3-311 of the Uniform Commercial Code, a claim can be discharged when a customer pays with a check or other instrument and all of the following apply:

• The customer tendered it in good faith as full satisfaction of the claim.
• The amount owed was unliquidated or subject to a bona fide dispute.
• The check, or a written note sent with it, contains a conspicuous statement that it was tendered in full satisfaction.
• You obtained payment of it, for example by depositing it.

So a check for less than the invoice, marked "paid in full" and sent while the amount is genuinely in dispute, can settle the whole debt once you cash it.

There are exceptions. A claimant can generally avoid the discharge by repaying the check amount within 90 days, and an organization can protect itself with a conspicuous written notice saying where disputed-debt payments must be sent, if the check went elsewhere. Neither helps if you, or the person responsible for the debt, knew the check was offered in full satisfaction before you collected it.

The UCC applies as each state enacts it, and the wording and case law can differ by state. If a short check arrives with "payment in full" wording on a disputed invoice, pause before depositing it and get advice.

Partial payments with no conditions

A transfer for part of the balance, with no full-settlement wording and no dispute, is normally just a payment on account. Record it, thank the customer, and ask for the rest.

Use this once you know why the payment was short, or when the customer has said they will pay the rest later.

Subject: Payment received for invoice [Invoice number], balance of [Balance]

Hi [Customer name],

Thank you for your payment of [Amount received] on [Payment date] against invoice [Invoice number].

The invoice total was [Invoice amount], so a balance of [Balance] remains open.

Could you confirm that the balance will be paid by [Requested date]?

If any part of the invoice is being queried, let me know which line and I will look into it straight away.

Thanks,

[Your name]

If the balance stays unpaid, our past due invoice email templates cover the later stages.

One short payment is a conversation. A pattern of short payments is a plan nobody agreed.

Consider a written plan when:

• The customer says they cannot pay the balance in one go.
• They have paid odd amounts two or three times with no clear end date.
• The balance is large compared with your monthly revenue.

Our payment plan agreement guide includes a template. Until a plan is agreed, keep asking for the full balance by a date.