The Disputed Pound: Ring-Fencing the Undisputed Balance When a Credit Note Arrives
Photo: Francisclarke, CC BY-SA 4.0, via Wikimedia Commons
A credit note for £240 should not be able to stop a £48,000 invoice. Yet suppliers report precisely this pattern with growing frequency: a buyer queries a line item, requests a small adjustment, and then treats the whole invoice as unresolved until the query is closed. The disputed element is real, but it is small. The hold is not.
The distinction matters because the law, the payment clock and the buyer's own contractual machinery all operate on sums, not on invoices as indivisible units. A dispute over one delivery note does not make the rest of the month's trading disputed. Treating it as though it does is a commercial choice by the buyer, and one that a supplier is entitled to challenge in writing.
The credit note is not a payment instruction
A credit note is an accounting document. It records a reduction in the consideration for a supply, and for VAT purposes it must normally be issued within 14 days of the reduction being agreed. It is not, in itself, a mechanism for suspending payment of the invoice to which it relates.
Two consequences follow. First, the original invoice remains a valid demand for the balance until it is either replaced or formally credited. Second, the date on which the credit note is agreed becomes a fact you can point to — and that date is the one that should govern the adjustment, not the date the buyer eventually gets around to processing it.
Where a buyer asks for a credit note weeks or months after the invoice fell due, the request does not retrospectively erase the period of late payment on the sum that was always due. Interest already accrued on that sum stays accrued.
What a whole-invoice hold actually is
A whole-invoice hold usually arrives as an email, not a formal notice. It says the invoice is "on query", "under review" or "parked pending resolution". In practice it functions as a unilateral extension of credit, granted by the debtor to itself.
In construction contracts, the position is more structured. Under the payment provisions of the Housing Grants, Construction and Regeneration Act 1996, a payer who intends to pay less than the notified sum must serve a valid pay less notice before the final date for payment. A credit-note request issued after that deadline is not a pay less notice and does not displace the obligation to pay the notified sum. Outside construction, the equivalent discipline comes from the contract's own payment terms and, where terms are silent, from the Late Payment of Commercial Debts (Interest) Act 1998.
A buyer is entitled to dispute a genuine item. It is not entitled to convert a narrow query into a broad withholding and then describe the result as a dispute. Courts have long distinguished a substantial, bona fide dispute from an after-the-event construction raised to resist a claim, and the difference is usually visible in the paperwork.
Splitting the invoice in the ledger
If the disputed amount is genuinely agreed, the cleanest course is to reduce the invoice to its undisputed figure in your own records — not the buyer's. Issue a credit note for the agreed value, re-state the balance, and make the revised demand explicit.
A short audit trail, kept for every credit-note event in 2026, will do most of the work if the matter is ever escalated:
| Step | Document | Date to capture |
|---|---|---|
| 1 | Written credit-note request from the buyer | Date received; the specific line item and sum queried |
| 2 | Your written agreement, quantified | Date the reduction was agreed (this drives the VAT credit note) |
| 3 | Credit note issued, with the original invoice number referenced | Date of issue |
| 4 | Revised invoice or balance demand, plus a dated payment claim for the undisputed sum | New due date, calculated from the original invoice terms |
Step four is the one most often missed. A credit note without a fresh written demand leaves the buyer free to treat the file as open. A one-page letter stating the revised balance, the date it fell due and the interest that will accrue is enough; it does not need to be a formal letter before action.
Keep the late-payment clock visible
Statutory interest under the 1998 Act runs at 8 per cent above the Bank of England base rate on qualifying debts, together with fixed compensation of £40, £70 or £100 depending on the size of the debt. The compensation is claimed once per invoice, not once per credit note, so a small adjustment does not entitle you to claim it twice — but nor does it extinguish the entitlement.
Where part of an invoice is genuinely disputed and part is not, the defensible position is to charge interest on the undisputed balance from its original due date, and to say so in writing at the time. Silence invites the buyer to assume the whole invoice has been deferred.
Three phrases worth avoiding
- "We'll sort the credit note out and then you can pay." This hands the buyer control of the timetable.
- "Please disregard the original invoice." Unless you have issued a replacement demand, you have removed a valid document from the file.
- "Happy to hold the invoice until the query is resolved." An open-ended hold is an interest-free loan.
When the escalation is proportionate
If the undisputed balance is more than a few thousand pounds and remains unpaid four weeks after the revised demand, a formal letter before action is usually the right next step. Keep it narrow: state the undisputed sum, attach the four documents above, and make clear that the credit-note adjustment has already been given. A claim that accounts for the deduction is far harder to characterise as an overreach than one that simply restates the original invoice.
Late payment in the UK rarely announces itself as a refusal to pay. It arrives as a series of small, reasonable-sounding adjustments, each of which nudges the payment date a little further out. The supplier's defence is not aggression. It is arithmetic — a clearly stated undisputed balance, a dated demand, and a credit note that closes an adjustment rather than opening a hold.
