Short pay (deduction)

A short pay, or deduction, happens when a customer pays part of an invoice and withholds the rest. Sometimes the remittance explains why; often it gives only a code, or nothing at all. Deductions are especially common when selling to large retailers and distributors.

Common reasons

• Shortages and damage: the customer says fewer goods arrived, or some were damaged.
• Pricing: the customer paid the price it believes was agreed, which differs from the invoice.
• Promotions and allowances: trade promotions, co-op advertising or volume rebates taken as deductions.
• Compliance penalties: fines for late deliveries, wrong labels or missing paperwork under a retailer's vendor rules.
• Early payment discounts: sometimes taken after the discount window has passed.

Handling them

Each deduction should be recorded as its own item so the original invoice can be closed and the difference tracked. Someone then gathers evidence, such as proof of delivery, the price agreement or the promotion contract, and decides whether the deduction is valid. Valid ones are settled with a credit note; invalid ones are disputed with the customer.

Time is the enemy. Evidence gets harder to find and customers become less willing to reverse deductions as months pass. Businesses that review deductions weekly recover far more than those that clean them up at year end.