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Customers pay less than the invoice, and the accountant cannot close invoices or explain the balance left on the debtor ledger.
Every short payment has a reason: TDS, discount, freight or damage deduction, unbooked credit note, rate difference or bank charges. Identify it from the payment advice or debit note, then decide whether it is accepted or disputed.
A payment advice from each customer, a list of agreed discount and freight terms, and a short-payment tracker with reason, amount, status and owner.
Invoices closed with the correct reason for every gap, accepted deductions booked, and disputed amounts followed up rather than written off by default.
When a customer pays less than the invoice, there is almost always a reason on their side. The common ones are TDS, an early-payment discount, a freight or damage deduction, a credit note you have not booked, a rate difference or bank charges. TDS is the most frequent, but it is only one of six.
What are the likely causes, and where do you look?
| Reason | Where to look | Entry on your side |
|---|---|---|
| TDS deducted | Payment advice; your TDS credit statement (Form 26AS, or Form 168 from tax year 2026-27) | Debit TDS receivable, credit customer |
| Early-payment discount | Your payment terms; customer’s payment advice | Debit discount allowed, credit customer |
| Freight or damage deduction | Customer’s debit note or deduction advice; delivery records | Debit freight or claims expense, credit customer, if accepted |
| Credit note you issued but did not book | Your sales register; customer’s ledger copy | Book the credit note, with GST |
| Rate difference | Purchase order, price list, contract | Credit note if you agree; dispute if you do not |
| Bank or remittance charges | Payer’s remittance advice, bank statement | Debit bank charges, credit customer |
Under Section 34 of the CGST Act, 2017, when the value of a supply is reduced after the invoice, for example because of a rate correction or a return, the supplier issues a credit note and adjusts the GST. A customer’s debit note on its own does not change your GST.
A worked example
You raise an invoice for ₹1,18,000 (₹1,00,000 plus 18 percent GST of ₹18,000). The bank shows a credit of ₹1,04,000.
The payment advice explains the ₹14,000 gap:
- TDS of ₹10,000, deducted on the service portion.
- Freight deduction of ₹4,000, because your transporter delivered late and the customer arranged its own pickup for part of the goods.
Check: ₹1,18,000 − ₹10,000 − ₹4,000 = ₹1,04,000.
| Entry | Debit | Credit |
|---|---|---|
| Bank | ₹1,04,000 | |
| TDS receivable | ₹10,000 | |
| Freight expense (if accepted) | ₹4,000 | |
| Customer ledger | ₹1,18,000 |
If you accept the freight deduction, the invoice closes in full. If you do not, you book only the bank receipt and the TDS, and ₹4,000 stays open on the customer’s ledger as a disputed balance.
When is a short payment a dispute, and when is it a deduction you accept?
Ask three questions:
- Is it in the agreement? An early-payment discount or freight term written into the contract is an accepted deduction.
- Is there evidence? A damage claim with photographs and a GRN showing rejected quantity is reasonable. A deduction with no explanation is not.
- Is it the right amount? A discount of 2 percent when the terms say 1 percent is a partial dispute.
Accepted deductions are booked straight away. Disputed ones are written to the customer, logged in a short-payment tracker with an owner and a follow-up date, and kept open. Writing off small differences without asking trains customers to keep deducting.
How do you stop the same deduction recurring?
- Ask for a payment advice with every payment, so you know the reason on day one.
- Put terms in writing: discount rates, freight responsibility, damage claim process.
- Fix the root cause. If the same rate difference appears every month, the price list or PO rate is probably wrong at one end.
- Track by customer. A customer who short-pays every invoice needs a conversation, not more journal entries.
What to read next
- Invoice matching: TDS, net and gross amounts covers the TDS reason in depth.
- Partial payment reconciliation in India explains how to allocate payments that settle only part of an invoice.
- What is a payment advice shows the document that explains most short payments.
- For matching receipts and TDS to invoices, see account reconciliation software India.