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Partial Payments
A payment that does not match an invoice is a decision waiting to be made, and made badly it produces a ledger neither party can reconcile.
For a software-side reference alongside this discussion of invoicing, records, and payment administration, Monitask provides guidance on employee time clock software.
The three kinds
A payment against a specific invoice, short. They have paid part of one thing.
A payment covering several invoices, matching none exactly.
And a payment with no reference at all, which is a payment and a puzzle.
Where it goes
Where the customer says it goes.
If the payment references an invoice, apply it there, even where a different allocation would suit you better.
Where there is no reference, ask. One line, same day: "Received £400 — which invoices would you like it against?"
Do not allocate silently to the oldest. It is a common default and it can be wrong, and a customer who intended it for a specific job will find their statement disagreeing with their expectation.
Where they do not answer, allocate to the oldest, say so in writing, and note that you asked. The record of having asked is the part that matters.
What accepting a short payment means
Usually nothing beyond the arithmetic. Occasionally something more.
A payment offered explicitly in full and final settlement of a disputed amount is a different matter, and accepting it can — depending on jurisdiction and circumstances — affect your ability to pursue the balance.
This is a point where the position genuinely varies, and it is not something to work out from a website. If a payment arrives described as full and final and you do not agree, take advice before banking it, or respond in writing rejecting that characterisation before doing anything.
Where the shortfall is simply a shortfall — they paid what they had, or made an error — none of that arises, and the response is a corrected statement.
The customer who pays a bit at a time
Sometimes this is a firm in trouble and sometimes it is a firm managing cash.
Regular partial payments against an agreed schedule are a payment plan, and they are frequently a better outcome than escalation. Deciding between them is judgement rather than policy.
Unilateral partial payments with no schedule are different — you are being managed, and the amounts will get smaller.
The distinction is whether there is an agreement. Where somebody is paying irregularly, propose one: an amount, a date, and what happens if it is missed. A written plan converts drift into a commitment, and most customers in genuine difficulty accept it with relief.
Recording them
Every payment against the invoice it relates to, on the day it arrives.
A balance that is correct only after somebody sits down with a bank statement is a balance you cannot quote in a chase, and quoting a wrong figure to a customer costs you the position entirely.
Show them on the statement. Received amounts as visible lines, so that both sides are reconciling the same document.
What not to do
Do not refuse a partial payment because it is not the full amount. Money received is money received, and refusing it achieves nothing while making the next one less likely.
Do not stop work over a shortfall without saying so first. Where staged payments are the arrangement, non-payment of a stage is a reason to pause — but the pause should be announced, not discovered.
And do not let a part payment reset your view of the age of the debt. An invoice half paid at ninety days is a ninety-day invoice, and treating it as fresh because something moved is how old debts become permanent.
The overpayment
Rarer and worth handling carefully.
Tell them the same day. A customer who discovers an overpayment themselves, weeks later, has learned something about you that no amount of good work corrects.
Offer the choice: refund it, or hold it against the next invoice. Most choose the second, and either way the decision is theirs.
And show it on the statement as a credit, so that the position is visible rather than remembered.
Rounding and small residues
A balance of a few units left on an invoice is not worth chasing and is worth clearing.
Write it off deliberately, with a credit note, rather than leaving it on the ledger where it will appear on every statement and eventually produce a query about a sum smaller than the query costs.
Set a threshold — whatever amount is not worth a document — and apply it consistently rather than deciding case by case. The same reasoning as writing anything off.
Payments from somebody else
A payment arriving from a name that is not your customer needs a note in the file.
A parent paying for a child's job, a company paying for a director's home, an agent paying for a landlord. All common, all fine, and all worth recording — because the person who paid is not necessarily the person who owes, and if a dispute arises the distinction matters.
Acknowledge to your customer, not to the payer: "Received £600 against invoice 214, thank you." That keeps the account where it belongs and avoids creating a relationship with somebody who is not the counterparty.
The short version
- A payment that does not match an invoice needs allocating, and the default of applying it to the oldest can be wrong
- Apply it where the customer says; where there is no reference, ask the same day and record that you asked
- A payment offered in full and final settlement of a disputed sum is a different matter, and the position varies by jurisdiction — take advice before banking it
- Regular partial payments against an agreed schedule are a payment plan; unilateral ones with no schedule mean you are being managed
- Propose a written plan with an amount, a date and consequences, which converts drift into a commitment
- Never refuse a partial payment, never pause work without announcing it, and never treat a part-paid old invoice as fresh
For broader background on invoicing, records, and payment administration, see Sage.