Whether to Refer to the Possibility of Dispute Over an Invoice

Eric Goldman recently sent me the following inquiry:

A typical vendor’s contract will say something like “Customer shall pay invoiced amounts within 30 days of invoicing.” With some frequency, customers have been marking up this language to read: “Customer shall pay *UNDISPUTED* invoiced amounts within 30 days of invoicing.” From a vendor’s perspective, I think the added language is objectionable in at least three ways. First, there are no explicit standards for the legitimacy of disputes (other than any implied good faith obligation that a court might impose), so the concern is that customers may dispute invoices using weak or illegitimate bases. Second, read literally, disputed amounts *never* become due, at least not without another provision for dispute resolution. Third, and most importantly, we already know that unhappy customers withhold payment for disputed items anyway, but with this language they appear not to be in breach for having done so–in contrast to default rules, where the customer would breach the contract for withholding payments if the vendor actually performed. So it seems to me that the addition of the word “disputed” is something vendors should resist. What do you think? And if vendors should fight back, what are some good arguments to makes, and are there some useful “compromise” language options?

One reason for not adding the word “undisputed” is that the Customer wouldn’t need it. If I promise to perform and you promise to pay for performance, the two promises are simultaneously conditional, and neither of us can maintain suit without first tendering performance. See 8-33 Corbin on Contracts § 33.1. So if a vendor fails to perform, the customer may refuse to pay the invoice, even if the contract doesn’t explicitly say so.

Another reason for not adding the word “undisputed” would be that adding it would cause problems. But I don’t see as problems the three issues you raise. Regarding the first, I don’t think one could reasonably argue that adding “undisputed” would affect the standards for assessing the legitimacy of any dispute. Regarding the second, I don’t think that adding “undisputed” would affect when a disputed amount becomes due. And regarding the third, I don’t think adding “undisputed” would affect whether a customer would be entitled to dispute a given invoice. In sum, adding “undisputed” makes it explicit that a customer might dispute an invoice, but it should have no bearing on how any dispute would be handled.

The only problem I see is that adding “undisputed” leaves unaddressed what happens if an invoice is disputed. Of course, that issue would arise even in the absence of the word “undisputed.” But if adding “undisputed” serves no substantive purpose, in that the customer doesn’t need it, then it could only serve a procedural purpose. That purpose would be subverted if you don’t address what happens if an invoice is disputed.

So I suggest that either you leave out “undisputed” or you add “undisputed” and specify when, if at all, any disputed amount is to be paid—presumably no later than X number of days after the dispute has been resolved in accordance with the dispute resolutions specified in the contract.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

5 thoughts on “Whether to Refer to the Possibility of Dispute Over an Invoice”

  1. Instead of the word “undisputed”, I prefer to say that I’ll pay “correct” invoices within 30 days…

    I’m worried about invoices that don’t meet the other requirements I have on invoices: contract number, itemized invoice, proper taxes (and list of things purchased), etc. Overall, I don’t want to have to go through a dispute process for stuff like that – basic bad invoices just don’t count (and, unfortunately, there are more of them than I would like to believe).

    That said, I DO list the requirements for a “correct” invoice in my template – so there shouldn’t be a dispute as to what is necessary. And yes, I have dispute language in the event that an invoice has a more glaring issue, like overcharges.

    Reply
  2. I’ve done the same as Jeff about “correct” invoices on occasion.

    I’ve also sometimes used a clause that requires Customer to notify Vendor in writing of any disputes no later than the invoice due date (or X days thereafter):

    Payment disputes: To help the billing party manage its accounts receivable, IF: the paying party wishes to dispute an invoice (or any other claim that a stated amount is owed to the billing party); THEN: the paying party must (1) timely pay any undisputed portion; and (2) furnish the billing party, no later than the payment due date, with a written explanation of its dispute, together with appropriate supporting documentation.

    If Vendor is a small company that doesn’t always watch its A/R as closely as it could, the written notice of dispute would be a useful nudge.

    As a practical matter, however, if Customer is going to slow-pay, it’s going to slow-pay, and Vendor is unlikely to file suit unless it concludes it’s never going to get paid at all.

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  3. The real problem is that the language most vendors use seems to imply to business readers that the vendor can charge whatever it wants and the customer must pay whatever is on the invoice. Sometimes a change of the language to something like this will avoid the problem: “Customer shall pay all amounts owed within 30 days after invoice.” Then you can explain that, if we didn’t perform the service, the fee isn’t owed.

    That said, I often end up using a variation on D.C.’s concept. I also often end up adding something that explicitly adds what the effect of disputing an invoice is: (1) no interest is due on the disputed amount (variation: unless the vendor prevails on the dispute) and (2) the failure to pay the disputed amount leads to a longer cure period before vendor can terminate for breach (variation: is not grounds for termination).

    Chris Lemens

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  4. I agree with Eric. I think adding the concept of ‘undisputed’ is very dangerous for the exact reasons he stated (from the seller’s perspective), and using the wording of ‘correct’ is the best and fairest resolution. I have resolved it this way many times.

    Reply

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