Record the amount that arrived against the invoice, leave the rest open, and find out why it's short before you chase. Then decide whether to chase the balance, agree a reduction with a credit note, or write it off. The VAT follows that decision, so check it once you've made it.
In this article
The short version
- Record the amount received and leave the balance open on the invoice.
- Find out why it's short before you chase.
- Chase the balance, issue a credit note, or write it off as a bad debt.
- On standard VAT accounting, a short payment doesn't reduce the VAT you owe.
- On cash accounting, you account for VAT only on what you've received.
Record what arrived and keep the balance open
However the shortfall came about, the first step is the same. Record the payment for the amount you actually received, against the invoice it was for, and leave the difference outstanding. Keep the invoice open and leave its amount as it is for now.
In QuickBooks Online, choose Receive payment, pick the customer, and enter the amount that arrived in the amount received field before ticking the invoice. QuickBooks keeps the remaining balance open on the invoice. In Xero, enter the amount received in the payment section of the invoice, and the invoice stays awaiting payment with the balance showing.
Recording it this way keeps your aged debtors list accurate, and it means the customer's statement shows exactly what's still owed. It also keeps your options open: you can still chase, credit or write off the balance later.
Find out why it's short
The reason changes what you do next, so ask before you chase. The usual explanations are:
- the client disputes part of the work, or thinks something wasn't delivered;
- they've paid what their purchase order allowed rather than what you invoiced;
- they've taken off a discount or retention they believe was agreed;
- they've paid several invoices in one transfer and the split isn't what you'd assumed;
- the money arrived through a payment provider that took its fee first, in which case your client paid in full.
Check your own records first: the quote, the purchase order, any emails agreeing a discount. Then contact the client with the invoice number, the amount received and the balance, and ask what the difference relates to. A chasing email for £180 that turns out to be a provider's fee is unlikely to recover anything, and it can sour an otherwise good relationship.
Chase it, credit it or write it off
Once you know why, there are three ways to close the gap.
If the balance is owed, chase it. Send a statement or reminder showing the original invoice, what's been paid and what's left. Seeing the figures side by side can be enough to get the rest paid.
If you agree the client shouldn't pay the full amount, because of a discount you'd forgotten or a fair complaint, issue a credit note for the difference. That reduces the invoice properly, rather than leaving a balance that nobody intends to collect.
If the balance is owed but isn't worth pursuing, write it off as a bad debt. That's a commercial call: weigh the amount against the time and goodwill it would cost to recover, and whether you expect to work with the client again.
Whichever you choose, make the decision and record it. A small balance left open with no owner tends to sit on your aged debtors list for months, and the conversation gets harder the further it is from the work.
If short payments are a pattern, it can help to let clients pay in parts on purpose. Adfin lets customers pay part of an invoice above a minimum you set, matches each part payment to the invoice, and keeps reminding them until the balance is cleared, with the payments syncing to Xero or QuickBooks. Its customer agents can also set up an instalment plan within rules you approve, so a client who can't pay in one go has a structured way to pay the rest.
What happens to the VAT
The VAT treatment depends on your VAT scheme and on which of the three routes you take.
On standard VAT accounting, you account for VAT on the full invoice when you issue it, so a short payment doesn't reduce what you owe HMRC. If you then agree a reduction and issue a credit note, the credit note reduces your output tax by the VAT on the amount credited. If the balance goes unpaid, you may be able to claim bad debt relief on the VAT once six months have passed from the later of the due date and the date of supply, provided you've already accounted for the VAT on it and written the debt off in your VAT records.
On cash accounting, you account for VAT only as payments arrive, so a part payment brings in a proportionate part of the VAT. Say you invoice £2,400 including £400 of VAT and the client pays £1,800. That's 75% of the invoice, so you account for £300 of VAT now and the remaining £100 when the rest is paid. If a payment covers more than one invoice, HMRC's guidance is to allocate it to invoices in the order you issued them. Where one invoice mixes VAT rates, you split the amount paid between the rates.
If the shortfall is a payment provider's fee, the client has paid in full and nothing changes: you account for VAT on the full amount, and the fee is a separate cost.
This is general information, not tax advice, so check anything that changes a VAT return with your accountant.
Common questions
Should I mark an invoice as paid if the client paid most of it? No. Record the amount received and leave the balance open, so your records and the client's statement show what's still owed.
How do I record a part payment in QuickBooks or Xero? Enter the amount actually received against the invoice. Both QuickBooks and Xero keep the remaining balance open on the invoice.
What if the client says they don't owe the rest? Find out why before you chase. If they're right, issue a credit note for the difference. If they're not, send a statement showing the original invoice and the balance.
Do I pay VAT on the full invoice if the client paid less? On standard accounting, yes, unless you issue a credit note or later claim bad debt relief. On cash accounting, you account for VAT only on what you've received.
When can I claim VAT bad debt relief? Once six months have passed from the later of the payment due date and the date of supply, and you've written the debt off in your VAT records.
Can clients pay an invoice in parts with Adfin? Yes. You can let customers pay in parts above a minimum you set, and Adfin keeps reminding them until the balance is cleared.
Sources
- HMRC - VAT cash accounting scheme (VAT Notice 731) (accurate as of October 2026) https://www.gov.uk/guidance/vat-cash-accounting-scheme-notice-731
- HMRC - Relief from VAT on bad debts (VAT Notice 700/18) (accurate as of October 2026) https://www.gov.uk/guidance/relief-from-vat-on-bad-debts-notice-70018
- HMRC - VAT Time of Supply manual, VATTOS2225 (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/vat-time-of-supply/vattos2225
- Intuit QuickBooks UK - Record invoice payments in QuickBooks Online (accurate as of October 2026) https://quickbooks.intuit.com/learn-support/en-uk/help-article/invoicing/record-invoice-payments-quickbooks-online/L4ZadDW7F_GB_en_GB
- Adfin - Credit control (accurate as of October 2026) https://www.adfin.com/credit-control
