Consultants Corner:
Short Pay Invoice Headaches? Our Readers
Offer 10 Better-Than-Aspirin Tactics
I t’s a dilemma that virtually
every accounts payable depart-
ment faces: what to do when
short paying an invoice. Do you
go ahead and short pay it hoping
that the vendor will realize why
you’ve reduced the payment or do
you pay the entire amount in-
voiced and pray you’ll get the
credit you’re owed? And, if you do
short pay the invoice, what kind
of documentation do you provide
your vendors?
This is an issue that if not given
adequate attention can create
huge problems and mountains of
non-value added work for ac-
counts payable departments.
When a reader wrote asking what
we recommended and what oth-
ers were doing we decided it was
worth a query in our weekly e-
zine. We had our own thoughts on
what should be done but realize
the best practice strategy might
not be practical for everyone—and
we were correct.
Readers wrote in in droves ex-
plaining what they do and why.
This is one issue with divergent
practices and we’ll present solu-
tions to both sides. This month we
have the theoretical best practice,
which we readily concede will not
work for many, along with reader
recommendations on how they
pay short. Next month, we’ll take
a look the other side of the pic-
ture.
The Theoretical Best Practice
Ideally, the invoice should be re-
turned to the vendor with an ex-
planation of why you want/need
to change the amount and a re-
quest that the invoice be reissued
in the correct amount. In this
manner, there are no concerns
about mismatches and paper
trails.
However the reality is, not many
organizations will be able to get AP Now &
new invoices issued. And even
Tomorrow 2009
more to the point, many organi-
zations are extremely reluctant to
To Short Pay or
take this approach. So, for many,
the tactics recommended by our Not: What’s Best
savvy readers are their only
When It Comes
course of action in addressing this
To Incorrect
issue.
Invoices?
The Tried and True Tactics
Here’s how our readers handle Our Readers
the matter when they short pay Speak Share Their
an invoice.
Expertise and
1) “If we ever have to short pay a Experiences
vendor, I always contact the high-
est person I can in the company
(the controller or credit manager)
and make sure the short pay-
 Page 2 DECEMBER 2008

ments are agreeable. I then explain
that if they dispute/refuse to issue
credit memos the payment will be
delayed until resolved. This always
works but credit memos are
far preferable to this type of nego-
tiation.”
‘CM.’ The original invoice is en-
tered and the credit memo we
c r e a t e ’ in h o u s e ’ is a ls o e n -
tered. The in-house credit memo
has the record of the information
on why the short pay was re-
quired and who authorized.”

2) “Paying the full invoice and wait-
ing for a credit that may never ar-
rive is not an option in our depart-
ment. We offer two alternatives to
our vendors:
a) The preferred method is to
have the person who authorizes
payment on the invoice call the
vendor and tell them we’ve re-
ceived their invoice and want to
pay it as soon as possible. They
can then discuss the problem
with the invoice and ask the
vendor to either issue a cor-
rected invoice or immediately
send over a credit memo (via
fax or e-mail) to be entered at
the same time as the in-
voice. The invoice will not be
entered without the credit
memo. If a new invoice is to be
sent, the vendor knows the in-
correct invoice will not be sub-
mitted to accounts payable.
b) Vendors usually want to be
paid as soon as they can, so
most often a credit memo is is-
sued. Sometimes a company
will not issue a credit memo but
will authorize short paying. In
that case a credit memo is cre-
ated ‘in house’ using the same
invoice number preceded by
3) “We short pay invoices but put a
note in the text field that prints on
the check. Our most common short
pays are freight and taxes. Most of
our purchase orders state to ship col-
lect and list the method to
ship. Also, as we are in manufactur-
ing, many purchases are nontaxable
and the PO will state that. Vendors
will still charge the tax. We don’t pay
it and a note prints on the check to
state that.”
4) “We short pay invoicing if the rea-
son is a manufacturers defect or a
vendor error in billing (i.e., an over
charge). We usually take discounts
when paying a vendor’s bill so short
paying allows us to get a discount on
everything except the unpaid balance
in question.”
5) “We usually will enter a separate
bill for the short pay with the original
invoice number but add a notation
before the number, i.e. CWR123456
The original invoice will have just the
123456 and we pay the invoice
amount less the short pay. This al-
lows us to keep an open bill for the
unpaid amount on the books.
When we are short paying an invoice
we always make sure that the vendor
is alerted as to why we are short pay-
ing and with whom we are working

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 Page 3 ACCOUNTS PAYABLE NOW & TOMORROW™

with to get the issue resolved. If we “Once they get used to you stick-
get word that this was an issue on ing to your guns on issues they
our side we immediately pay the are happy because they know
unpaid balance with no discounts that there really is an issue that
taken. needs assistance. We have some-
times noticed management gets
“When we are paying bills weekly, involved because of the under
we see that if we have not received paids to correct this issue at
the credit from the manufacturer hand.
this bill goes unpaid until either the
issue is resolved and or the credit “To get a credit we usually work
has been issued. Once a month we with another department for the
contact vendors requesting an up- credits so the accounting depart-
date on the credits expected for the ment does not know what is going
list of short pays. on (this is why we let them know
why we are underpaying the in-
“When the credit does come in, we voice the day that it should be
remove the notation at the front of paid). This alerts them when
the invoice number (going from there are a large number of short
CWR123456 to 123456) that was pays that might need manage-
originally put on the bill and pay it ment knowledge.”
as usual. The vendor sees the origi-
nal invoice number that was under- 6) “I record the invoice at the full
paid and they can apply the pay- amount, then record an inter-
ment appropriately. nally-generated credit memo. I
document on the paper invoice
“This is a win/win situation for both and in the credit memo 'comment'
our accounting department as well area in the system why we are
as the vendor. We usually do not short paying the invoice. Then I
underpay an invoice unless there is send a copy of the invoice
an actual documented problem on (with the documenta-
the vendor’s side.
More I
nvoice
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 Page 4 DECEMBER 2008

tion written on it) to the vendor
with the short-pay check. I’m
not sure how that would work if
the invoice and/or payment
were electronic, but it works
quite well for old-fashioned pa-
per transactions.”
7) “We always post the invoice
at full invoice price and block for
payment. When, after approval,
an adjustment has to be made,
we post a separate debit memo
explaining the reason for the
adjustment and referring back
to the invoice, unblocking the
invoice for payment. The sys-
tem then processes the two
items together when making
payment as separate line items
on the check or remittance ad-
vice. This way, the vendor sees
the full invoice amount as one
line and the adjusting entry with
explanation.”
short paying. We also send the
vendor a copy of our debit memo
with their checks so they can re-
view why we are short paying.”
9) “We are a university and are
tax-exempt. Many times when we
receive invoices they include state
sales tax. We do not pay the sales
tax and we adjust the invoice ac-
cordingly. We then submit a copy
of our tax exemption certificate
along with the check.”
10) “We short pay our invoices
and mail a copy of the invoice to
the company with the check,
showing the item that we short
paid and write any notes that we
may have pertaining to the short
pay. This helps us eliminate some
confusion with the companies as
to why we short paid the in-
voice. In most cases this takes
care of the billing issues.”

8) “We pay the invoices in full
and then enter a debit memo
against the invoice, thus we are
only paying what we agree to
but we have an audit trail of the
entire invoice and why we are
The advice offered above by our
readers provides numerous ap-
proaches for those not willing to
return an invoice for correction.
One of them should work in your
shop. AP N&T

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Page 5 DECEMBER 2008
Consultants Corner: The Other Side of the
Coin: Those Who Never Short Pay
I t’s a dilemma that virtually
every accounts payable depart-
ment faces: what to do when a
correction needs to be made to
an invoice. Do you short pay it
and hope like crazy you can pro-
vide enough documentation so
the vendor knows what you paid
or do you hold firm and wait for
a corrected invoice? This is one
area where accounts payable
professionals are divided.
In the prior article we looked at
tactics used by those among our
readers who short pay their in-
voices. This month we have ad-
vice from the other side: those
who refuse to pay the invoice
until it is corrected.
Here’s how these professionals
handle the matter when invoices
contain errors.
♦ “We have a policy to never
short pay an invoice. We
have found if the situation is
not cleared up at the time
the issue is discovered, it
just comes back a year
♦ “We always pay the vendor's
later. I understand it takes
time to request the credit
and the follow up required,
but we have found this to be
easier and takes less time
then pulling all the informa-
tion together a year later
when a request is received
from the vendor for the bal-
ance due.”
♦ “Our company is a manufac-
turer and we purchase large
volumes of steel, pipe, and
high-dollar raw materials
and products. Our vendors
frequently bill incorrectly, ei-
ther the unit price, freight,
quantity etc.. Although the
salesperson asks that we "just
short pay the invoice" we
strictly avoid this practice. The
sh ort paymen t agreemen t
made by the salesperson is
seldom if ever relayed to the
vendor's accounts receivable
staff and that leaves two puz-
zled clerks: their collector and
our accounts payable person.
Credit memos can stop this
problem immediately if the
vendor can issue them. Cred-
its sometimes are subject to
higher management approval,
and the company always
w a n t s t h e ir m o n ey w it h in
terms, thus the request to
short pay. I as a supervisor,
have to do a great deal of ex-
plaining when I present any
wire payment request with
short paid invoices to directors
and auditors. Short payments
do not leave a clean financial
paper trail.”
invoice exactly as they send it
to us. If we need to pay a dif-
ferent amount, we create a
separate document to correct
the invoice (called an adjust-
ment memo). The adjustment
memo details all the reasons
for the adjustment (cost dif-
ference, quantity difference,
etc.) and also charges a fee
for the invoice error. The ad-
justment memo carries the
same terms and conditions as
the original invoice/purchase
order, so it will remit on the
 Page 6 DECEMBER 2008
same payment as the in-
voice resulting in a net pay-
ment of the amount that our
company authorizes.”
♦ “Our company pays the in-
voice in full so that we can
take full advantage of any
terms discounts and posts a
debit for the amount that we
should be credited at the
same time. If we do receive
the credit before the invoice
is actually paid we are able
to reverse the debit memo.
If we do not receive the
credit then the debit is de-
ducted off of the check when
the invoice is paid. The debit
memo is given the same
number as the invoice num-
ber for easy tracking pur-
poses.”
♦ “I almost said that I never
pay invoices short but really
never except once. I always
put the whole invoice in and
then wait for the credit or I
leave the invoice out with a
note on it ‘waiting for credit.’
Our system allows us to put
an invoice on ‘hold’ which
Bad Invoice Practices
♦ Not tracking where invoices are at all times
♦ Allowing game playing to go on between different
departments
♦ Not demanding that vendors indicate a PO number
or the name of a purchaser on an invoice
♦ Paying from statements when that is not the policy
for that vendor
♦ Paying credits rather than taking them
♦ Not having one policy regarding where invoices
should be directed
Source: Controllers & CFOs Guide to Accounts Payable
puts an H on the aging and
when you are in payment se-
lection it doesn’t appear under
the vendor. Also it allows us
to make a partial payment. In
the case where I did pay
short, the invoice (for resur-
facing the parking lot) was en-
tered for the full amount but
when I selected it for payment
I was able to change the dollar
amount allowing us to hold
back $5000 until necessary
repairs were made.”
♦ “If we receive an invoice in
which not all the products
were shipped or there was a
problem with the order, we do
not pay it right away but in-
stead wait for a credit memo
to be sent showing the adjust-
ment. We then pay the origi-
n al inv oice an d apply th e
separate credit memo to the
same check.”
Now that you’ve heard readers
sound off on both sides of this
issue, you can devise a policy
that will work in your organiza-
tion and industry.
Unfortunately, what we might
like to do in a perfect world,
doesn’t necessarily match what
goes on in our accounts payable
operations. Most of us would
probably like to demand a cor-
rected invoice. However, this is
not always possible or practical,
especially if many invoices re-
quire adjustment—or the supplier
will put your organization on
credit hold as a result of the de-
layed payment.
It’s the job of flexible managers
to make this situation work for
the conditions at their organiza-
tion, regardless of their personal
Page 7 DECEMBER 2008

Book Excerpt: Electronic Invoicing

A short excerpt on electronic
invoicing is included as it allows
solving invoice discrepancies to
happen faster, sometimes even
before the due date.
♦ Mistakes are reduced, as
there is no need to rekey
information.
♦ The workflow to route in-
voices for approval is easier.

E lectronic invoicing, also re-

ferred to as e-invoicing and
♦
♦
Costs are reduced.
Blaming accounts payable
for others’ own shortcom-
electronic billing, has made a
ings in processing paper be-
big dent in the way invoices are
comes difficult.
handled in the corporate world.
As you will see, it also helps end Unfortunately, e-invoicing has not
some of the petty problems dis- been adopted by everyone imme-
cussed earlier. Technically diately. Some of the reasons it
speaking, the soup-to-nuts con- has not been embraced as much
cept is referred to as electronic as might be anticipated include:
invoice presentment and pay-
♦ Cost
ment (EIPP). It refers to the
concept of an invoice being sent ♦ Implementation time
electronically, received elec-
♦ Budget constraints
tronically, and the ultimate pay-
ment being made electronically ♦ Internal resistance to
most frequently through the change
ACH.
♦ Lack of ease of use
e-Invoicing encompasses many ♦ Difficulty in signing up part-
different formats and ap- ners
proaches. At its simplest, e-
♦ Fear
mailing an attached Word, Ex-
cel, or PDF document should be
By supporting the use of e-
considered electronic invoicing,
invoicing wherever possible, you
as the document has arrived
will have taken a giant step to-
electronically at the customer.
ward eliminating some of the
Similarly, a company that pays
problems in accounts payable as
its employees using direct de-
well as the friction points with
posit is making electronic pay-
other groups within the company.
ments. In each of the examples
The benefits, as described earlier,
mentioned, the companies in-
make it an approach that should
volved are participating in EIPP,
be encouraged. Invoices can be:
albeit in a minor way.
♦ Picked up at the supplier’s
As you have probably figured Web site (seller-centric)
out, e-invoicing has a positive
♦ Delivered by the supplier to
impact in numerous ways. In
the purchaser’s Web site
addition to the elimination of
(buyer-centric)
paper, companies like e-
invoicing because: ♦ Picked up at a consolidator
site (consolidator model)
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