📋 Overview

You've received a demand letter demanding payment of an allegedly unpaid invoice. Before you pay or ignore it, you need to verify the claim's validity. Vendors sometimes demand payment for goods never delivered, services never rendered, or amounts already paid. This guide helps you evaluate and respond to the demand.

⚠ Verify Before Paying

Never pay an invoice just because you received a demand letter. Verify delivery, quality, and that the amount is correct before responding.

🕒 Collection Escalation

Unpaid invoice demands often escalate to collection agencies or litigation. Responding professionally can prevent credit damage and lawsuits.

💰 Interest & Fees

California allows 10% prejudgment interest on contracts. Late fees may also apply if stated in the agreement. Attorney fees if contract provides.

Common Reasons to Dispute an Invoice

  • Goods/services never received - Nothing was delivered or work was never performed
  • Defective goods or poor workmanship - What was delivered didn't meet specifications
  • Billing errors - Wrong quantities, prices, or duplicate charges
  • Unauthorized charges - Items you never ordered or agreed to
  • Already paid - Payment was made but not credited
  • Offset/setoff - The vendor owes you money that should be credited
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Invoice review, legal analysis, professional response letter with up to 2 revisions. Stops collection escalation.

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🔍 Evaluate the Claim

Before responding, gather documentation and verify every aspect of the claimed invoice.

Risk Assessment Matrix

Situation Exposure Risk Level
Undisputed invoice, goods received Principal + 10% interest + fees + attorney costs HIGH
Partial delivery or defects Reduced amount for value received MEDIUM
Disputed pricing or quantity Contract price controls over invoice MEDIUM
No contract, disputed work Quantum meruit for reasonable value LOW
Already paid (documentation exists) None if payment proven LOW

📄 Invoice Verification

  • ✓ Compare invoice to original PO/contract
  • ✓ Verify delivery receipts or completion
  • ✓ Check for prior payment records
  • ✓ Confirm quantities and pricing match

📝 Quality/Performance Issues

  • ✓ Document any defects or shortages
  • ✓ Gather emails about quality complaints
  • ✓ Photos/records of defective goods
  • ✓ Costs to remedy or replace

⚠ UCC Article 2 for Goods

For sale of goods over $500, California Commercial Code (UCC Article 2) applies. You have rights to reject non-conforming goods, cure periods may apply, and the perfect tender rule may allow rejection for any defect. Review the contract's acceptance and rejection procedures.

🛡 Your Defenses

California law provides several defenses to invoice collection claims.

No Goods/Services Received

You can't be charged for goods never delivered or services never performed. The burden is on the vendor to prove delivery and your acceptance.

When to use: You have no record of receiving the goods or services billed.

Non-Conforming Goods/Breach of Warranty

Under Commercial Code 2601, you may reject goods that fail to conform to the contract. Breach of express or implied warranties (CC 2313-2315) reduces or eliminates payment obligation.

When to use: Goods were defective, wrong specifications, or didn't work as promised.

Payment Already Made

If you already paid this invoice (or it was included in a prior payment), you owe nothing. Produce cancelled checks, wire confirmations, or credit card records.

When to use: You have records showing this invoice was already paid.

Setoff/Recoupment

If the vendor owes you money from a related transaction, you can offset that amount against the invoice. Recoupment allows reduction for the vendor's own breach.

When to use: Vendor owes you for returns, credits, chargebacks, or their own breaches.

Statute of Limitations

Accounts stated (open book accounts): 4 years (CCP 337). Written contracts: 4 years. The clock starts when payment was due.

When to use: The invoice is more than 4 years old from the due date.

Unauthorized Charges

You're not liable for goods or services you didn't order. Verify the order originated from authorized personnel and matches your purchase orders.

When to use: Someone ordered without authority or the charges weren't in the original agreement.

🚨 Weak Defenses to Avoid

  • "We're having cash flow problems" - Not a defense, just delays
  • "We didn't get the invoice" - They'll just resend and add late fees
  • "We forgot" - Doesn't excuse payment obligation
  • "Our contact person left" - Internal issues don't eliminate debt

⚖ Response Options

Based on your evaluation, choose the appropriate response strategy.

Negotiate Settlement

If you owe something but less than claimed, negotiate a reduced payment. Vendors often accept 70-90% to avoid collection costs.

  • Pay less than demanded
  • Avoid collection/litigation
  • Preserve vendor relationship

Dispute in Writing

If you have valid defenses, dispute the invoice in writing with supporting documentation. Preserve your position for any litigation.

  • Documents your position
  • Stops escalation
  • Creates legal record

Pay Under Protest

If you need to maintain a vendor relationship or avoid credit damage, pay but explicitly reserve the right to seek refund for disputed amounts.

  • Stops immediate collection
  • Preserves refund claim
  • Maintains relationship

Request Documentation

Before substantive response, require the vendor to prove the debt: signed contract, delivery receipts, and itemized accounting.

  • Exposes weak claims
  • Buys investigation time
  • Shifts burden to vendor

📊 Cost-Benefit Analysis: Pay vs. Fight

Example: $15,000 invoice dispute

Original invoice amount $15,000
Prejudgment interest (10% x 1 year) $1,500
Late fees (if in contract) $750
Vendor's attorney fees (if clause) $5,000+
Your defense costs $7,500+
MAX EXPOSURE IF YOU LOSE $29,750+

💡 Settlement Economics

For disputed invoices under $25,000, settling for 50-80% often makes economic sense. Vendors typically accept discounts rather than incur collection costs. Always get a lien release and satisfaction in exchange for payment.

📝 Sample Responses

Copy and customize these response templates for your situation.

Request for Documentation
We acknowledge receipt of your demand dated [DATE] regarding Invoice No. [NUMBER] in the amount of [$AMOUNT]. Before we can evaluate this claim, please provide the following documentation: (1) signed purchase order or contract authorizing the goods/services, (2) proof of delivery with signature of authorized recipient, (3) itemized breakdown of all charges, and (4) statement of account showing all payments and credits. We will respond substantively within 14 days of receiving complete documentation. Nothing in this letter constitutes an admission of liability.
Dispute - Defective Goods
We dispute Invoice No. [NUMBER] dated [DATE] in the amount of [$AMOUNT]. The goods delivered on [DELIVERY DATE] failed to conform to the specifications in Purchase Order No. [PO NUMBER]. Specifically, [describe defects - e.g., wrong size, damaged condition, missing components]. We notified you of these defects by [email/letter] on [DATE]. Under California Commercial Code Section 2601, we properly rejected the non-conforming goods. You failed to cure within a reasonable time. We are therefore not obligated to pay for goods that did not meet the contract specifications. We remain willing to discuss resolution, including accepting replacement conforming goods or a reduced payment commensurate with the actual value received.
Settlement Offer
Re: Invoice No. [NUMBER] - Settlement Offer Without admitting liability, we are prepared to resolve this matter by payment of [$AMOUNT], representing [XX]% of the disputed invoice, in full and final settlement. This offer is conditioned upon: (1) your execution of a lien release and satisfaction of claim, (2) removal of any negative credit reporting, and (3) mutual release of all claims arising from [describe transaction]. This offer is made pursuant to California Evidence Code Section 1152 and will remain open for 14 days until [DATE]. If not accepted, we will vigorously defend any collection action. Payment will be made within 5 business days of receiving signed settlement documents.
Prior Payment Defense
We dispute your demand for payment of Invoice No. [NUMBER]. Our records indicate this invoice was paid in full on [DATE] by [check no./wire transfer/ACH] in the amount of [$AMOUNT]. Enclosed please find [copy of cancelled check/wire confirmation/bank statement] confirming this payment. Please update your records to reflect this payment and confirm in writing that this matter is closed. If you believe our payment was applied to a different invoice, please provide a complete statement of account showing all invoices and payments for our review. We expect written confirmation within 10 business days. Any further collection activity regarding this paid invoice will be considered harassment and may result in legal action.

🚀 Next Steps

What to do after receiving an invoice collection demand.

Step 1: Verify the Invoice

Check your records for the original order, delivery, quality issues, and payment history before responding.

Step 2: Document Issues

If there were defects or problems, gather all evidence: photos, emails, rejection notices, repair costs.

Step 3: Respond in Writing

Never ignore a demand. Respond in writing to preserve your position and prevent escalation.

Step 4: Negotiate or Defend

Decide whether to settle, pay under protest, or vigorously dispute based on your analysis.

If They Send to Collections

  • Dispute within 30 days - Under FDCPA, you can require validation of the debt
  • Document all communications - Collection agencies must follow strict rules
  • Watch for improper practices - Harassment, false statements, and unfair practices are prohibited
  • Credit reporting rights - You can dispute inaccurate credit reporting with bureaus

If They File Suit

  • Answer within 30 days - File your answer and affirmative defenses to avoid default
  • Assert counterclaims - If they breached first or owe you money, file a cross-complaint
  • Consider small claims - For claims under $10,000, small claims may be appropriate

Get Professional Help

Invoice disputes can escalate to collections and credit damage. Get a professional response letter drafted on attorney letterhead.

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California Resources

  • California Commercial Code: UCC Article 2 for goods transactions
  • Civil Code 1717-1718: Attorney fee provisions
  • CCP 337: 4-year statute of limitations for contracts
  • Rosenthal Fair Debt Collection Practices Act: Civil Code 1788 et seq.