Simple, right? Your company orders goods, they arrive, the bill comes, you pay it. Not always.
Sometimes things get a little – or even a lot – muddier. Payment disputes can be tricky and when not handled properly, can land your company in court.
So how good are you at knowing when to pay and when not to pay an invoice?
Check out the facts of the three payment disputes below and decide whether you would pay the bill or not. Then see how the court actually ruled.
Scenario #1
A company wasn’t satisfied with the quality of a supplier’s goods, so it let them know in a series of e-mail exchanges with the vendor. When the company finally decided it had had enough, it announced it was terminating the relationship, despite an outstanding balance. The vendor cried foul, saying the company had to cancel the contract in writing, by mail, as per the contract. The company maintained that the supplier was well aware of the problems and that the dozens of e-mails were sufficient notice.
Would you pay this invoice?
You should have – a court ordered the company to pay the outstanding balance. The contract was clear: The relationship had to be terminated by a written, mailed notice. It didn’t matter how many previous e-mails crossed back and forth. That didn’t change the requirements.
Cite: Valspar Refinish Inc. v. Gaylord’s Inc.
Scenario #2
This company received and accepted a shipment of products from its supplier. It was only after the standard window for disputes passed that the buyer’s customers started complaining that the supplier’s products were defective. The company contacted its supplier and refused to pay the outstanding balance. But the supplier insisted it was too late to object.
Would you pay this invoice?
You should not have. The court ruled the company was justified in holding back the final payment. Not only that, but it ruled the company was owed a full refund plus damages. The judge’s stance: It was certainly reasonable that the company (or its customers) would have to try out the products before it noticed some defects.
Cite: Courey International, Inc. v. Designer Floors of Texas, Inc.
Scenario #3
A company promptly notified its vendor of a defective shipment. The supplier billed them anyway. When the company said it wouldn’t pay the balance, the supplier argued that there were two recourses in case of a defective shipment:
- Let the supplier correct the problem, or
- Request a credit to the account.
Nonpayment was not an option, maintained the supplier. But the customer disagreed.
Would you pay this invoice?
You probably shouldn’t have … as long as your company is willing to fight it out in court. The court refused to make the customer pay the outstanding balance. But it also wouldn’t rule the company was correct in not paying – the case will either have to go to trial or be settled out of court.
Cite: Holley Performance Products, Inc. v. Smith-CNC China Network, Co., et al.