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Accounts Payable: To Short Pay an Invoice or Not

Accounts Payable: To Short Pay an Invoice or Not

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An accounts payable consultants corner white paper that delves into the issue of whether it is better to short pay an invoice or delay payment asking for a corrected invoice.
An accounts payable consultants corner white paper that delves into the issue of whether it is better to short pay an invoice or delay payment asking for a corrected invoice.

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Published by: Accounts Payable Now and Tomorrow on May 18, 2009
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01/11/2013

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I
t’s a dilemma that virtuallyevery accounts payable depart-ment faces: what to do whenshort paying an invoice. Do yougo ahead and short pay it hopingthat the vendor will realize whyyou’ve reduced the payment or doyou pay the entire amount in-voiced and pray you’ll get thecredit you’re owed? And, if you doshort pay the invoice, what kindof documentation do you provideyour vendors?This is an issue that if not givenadequate attention can createhuge problems and mountains of non-value added work for ac-counts payable departments.When a reader wrote asking whatwe recommended and what oth-ers were doing we decided it wasworth a query in our weekly e-zine. We had our own thoughts onwhat should be done but realizethe best practice strategy mightnot be practical for everyone—andwe were correct.Readers wrote in in droves ex-plaining what they do and why.This is one issue with divergentpractices and we’ll present solu-tions to both sides. This month wehave the theoretical best practice,which we readily concede will notwork for many, along with readerrecommendations on how theypay short. Next month, we’ll takea 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/needto change the amount and a re-quest that the invoice be reissuedin the correct amount. In thismanner, there are no concernsabout mismatches and papertrails.However the reality is, not manyorganizations will be able to getnew invoices issued. And evenmore to the point, many organi-zations are extremely reluctant totake this approach. So, for many,the tactics recommended by oursavvy readers are their onlycourse of action in addressing thisissue.
The Tried and True Tactics
Here’s how our readers handlethe matter when they short payan invoice.1) “If we ever have to short pay avendor, I always contact the high-est person I can in the company(the controller or credit manager)and make sure the short pay-
Consultants Corner:Short Pay Invoice Headaches? Our ReadersOffer 10 Better-Than-Aspirin Tactics
AP Now & Tomorrow 2009To Short Pay orNot: What’s BestWhen It ComesTo IncorrectInvoices?Our ReadersSpeak Share TheirExpertise andExperiences
 
 
Page 2
DECEMBER 2008
ments are agreeable. I then explainthat if they dispute/refuse to issuecredit memos the payment will bedelayed until resolved. This alwaysworks but credit memos arefar preferable to this type of nego-tiation.” 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 toour vendors:a) The preferred method is tohave the person who authorizespayment on the invoice call thevendor and tell them we’ve re-ceived their invoice and want topay it as soon as possible. Theycan then discuss the problemwith the invoice and ask thevendor to either issue a cor-rected invoice or immediatelysend over a credit memo (viafax or e-mail) to be entered atthe same time as the in-voice. The invoice will not beentered without the creditmemo. If a new invoice is to besent, the vendor knows the in-correct invoice will not be sub-mitted to accounts payable.b) Vendors usually want to bepaid as soon as they can, somost often a credit memo is is-sued. Sometimes a companywill not issue a credit memo butwill authorize short paying. Inthat case a credit memo is cre-ated ‘in house’ using the sameinvoice number preceded by ‘CM.’ The original invoice is en-tered and the credit memo wecreate ’in house’ is also en-tered. The in-house credit memohas the record of the informationon why the short pay was re-quired and who authorized.” 3) “We short pay invoices but put anote in the text field that prints onthe check. Our most common shortpays are freight and taxes. Most of our purchase orders state to ship col-lect and list the method toship. Also, as we are in manufactur-ing, many purchases are nontaxableand the PO will state that. Vendorswill still charge the tax. We don’t payit and a note prints on the check tostate that.” 4) “We short pay invoicing if the rea-son is a manufacturers defect or avendor error in billing (i.e., an overcharge). We usually take discountswhen paying a vendor’s bill so shortpaying allows us to get a discount oneverything except the unpaid balancein question.” 5) “We usually will enter a separatebill for the short pay with the originalinvoice number but add a notationbefore the number, i.e. CWR123456The original invoice will have just the123456 and we pay the invoiceamount less the short pay. This al-lows us to keep an open bill for theunpaid amount on the books.When we are short paying an invoicewe always make sure that the vendoris alerted as to why we are short pay-ing and with whom we are working
 Accounts Payable Now & Tomorrow 
(ISSN: 1557-3567) is published monthly for $329 per year byCRYSTALLUS, Inc., 171 Haut-Brion Ave., Newark, DE 19702. © 2009 Crystallus Inc. All rights re-served. A one-year subscription includes 12 monthly issues plus regular e-mail transmissions of newsand updates. Periodicals postage paid at Newark, DE and additional mailing offices. Reproductionwithout permission is prohibited.
 Accounts Payable Now & Tomorrow 
does not render legal, account-ing or other professional services. Legal and other expert assistance should be sought from compe-tent professionals.
 
 
with to get the issue resolved. If weget word that this was an issue onour side we immediately pay theunpaid balance with no discountstaken. “When we are paying bills weekly,we see that if we have not receivedthe credit from the manufacturerthis bill goes unpaid until either theissue is resolved and or the credithas been issued. Once a month wecontact vendors requesting an up-date on the credits expected for thelist of short pays. “When the credit does come in, weremove the notation at the front of the invoice number (going fromCWR123456 to 123456) that wasoriginally put on the bill and pay itas usual. The vendor sees the origi-nal invoice number that was under-paid and they can apply the pay-ment appropriately. “This is a win/win situation for bothour accounting department as wellas the vendor. We usually do notunderpay an invoice unless there isan actual documented problem onthe vendor’s side.
Page 3
ACCOUNTS PAYABLE NOW & TOMORROW™
 “Once they get used to you stick-ing to your guns on issues theyare happy because they knowthat there really is an issue thatneeds assistance. We have some-times noticed management getsinvolved because of the underpaids to correct this issue athand. “To get a credit we usually workwith another department for thecredits so the accounting depart-ment does not know what is goingon (this is why we let them knowwhy we are underpaying the in-voice the day that it should bepaid). This alerts them whenthere are a large number of shortpays that might need manage-ment knowledge.” 6) “I record the invoice at the fullamount, then record an inter-nally-generated credit memo. Idocument on the paper invoiceand in the credit memo 'comment'area in the system why we areshort paying the invoice. Then Isend a copy of the invoice(with the documenta-
White Paper: Demise of the Paper Invoice
The Demise of the Paper Invoice white paper is a 20-page $29.95report based on our research of the evolving invoice delivery prac-tices. It is delivered electronically. (So please include your e-mail address!)
Are Paper Invoices Going the Way of the Dinosaur?
Readers Comments: Part of the Research for This Paper
Consultants Corner: A Related Paper Invoice Problem
No Name, No PO: Guess What? No Check
 
Accounts Payable & Sarbanes Oxley Book Excerpt: Invoice Handling
Fraud in Accounts Payable
 Book Excerpt: Vendor and Invoice Fraud: Not Every Invoice (or Vendor!) Is Legit
 
How to Efficiently Handle Detailed Invoices for Small-Dollar Amounts
 
To order, use Coupon on the back orgo to 
 
 
   

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