Money arriving in pieces is normal: a deposit before the work, staged payments through a project, or a client who simply pays part of an invoice and says the rest is coming. Each of these is a different situation with a different correct treatment, and the common failure is treating them all as "some money came in" and adjusting the invoice until the numbers look right.
That habit is what produces ledgers nobody can reconcile a year later. The discipline is simple: never edit an issued invoice to reflect a payment. Record the payment against it and let the balance be the arithmetic.
Three situations that look alike and are not
A deposit is money taken before you have delivered anything. You have been paid but you have not earned it, which means on accrual books it is not revenue yet — it is a liability, because you owe the client either the work or their money back. It becomes revenue as you deliver.
An instalment is a scheduled part of an agreed payment plan. The total was known and agreed up front; the payments arrive on a timetable. Each instalment is usually its own invoice, or a defined draw against a single agreed total.
A short payment is the awkward one: the client owed the full amount and paid less. Sometimes it is a deliberate deduction over a disputed item, sometimes a mistake, sometimes cash-flow triage on their side. Whichever it is, it needs a reason attached before it is recorded, because the reason determines whether the remainder is collectable, disputed, or should be credited.
The rule: record payments, never edit the invoice
When a client pays £400 of a £1,000 invoice, the temptation is to change the invoice to £600 so the outstanding figure looks right. Do not. The invoice is a record of what was billed, and altering it destroys the trail — you now have a document that disagrees with what the client received and with your own tax records for the period.
The correct treatment is to leave the invoice at £1,000, record a £400 payment against it, and let the system show a £600 balance. That way the invoice still evidences what was charged, the payment evidences what was received, and the balance is derived rather than asserted.
This is not merely bookkeeping fussiness. Where invoice numbering and content are regulated, an edited invoice is a defective record. And if the client ever queries what they paid, a clean history of one invoice and its payments answers the question in seconds.
| Situation | Document | Accrual treatment |
|---|---|---|
| Deposit before work | Deposit invoice or request | Liability until earned, then recognised as revenue |
| Scheduled instalment | Invoice per instalment | Revenue as each stage is delivered |
| Short payment, rest coming | Payment against original invoice | Balance stays as a receivable |
| Short payment, amount disputed | Payment plus credit note if conceded | Reduce the receivable only when the credit is issued |
| Balance never collectable | Write-off | Bad debt expense, not a quiet invoice edit |
Allocating payments across several invoices
When a client with five open invoices sends one round sum that matches none of them, allocation stops being obvious and starts mattering. The default convention is oldest first, which keeps the ageing profile honest and stops old debt hiding behind new payments.
The client can direct otherwise, and if they do, that direction generally governs — a payment marked as settling a specific invoice should be applied to that invoice even if older ones are outstanding. This is one reason remittance advice is worth asking for: it removes the guesswork entirely.
Where nothing is specified, allocate oldest first, record how you allocated, and tell the client. Silent allocation is how you end up in a conversation six months later where both sides believe a different invoice is the unpaid one.
Deposits, tax, and the trap at the end
Deposits carry a tax wrinkle worth knowing. In several VAT and GST systems, receiving a payment can itself be a tax point — meaning tax may become due when the deposit arrives rather than when the work completes. Where that applies, the deposit request needs to be a proper tax document rather than an informal "please send 50%".
The end of a part-paid job is where the classic error happens. A client pays £950 of £1,000 and stops. The remaining £50 is small enough not to chase, so it gets quietly deleted or the invoice is edited down. Neither is right: if you are conceding the £50, issue a credit note, which documents the concession and adjusts any tax correctly. If you are giving up on collecting it, write it off as bad debt, which records that you were owed money you did not receive.
The distinction matters beyond tidiness. A credit note says "I agreed you did not owe this". A write-off says "you owed it and did not pay". Those are different facts about the client, and only one of them should influence whether you extend credit to them again.
Common Mistakes
Editing the invoice down to match what was paid
This destroys the audit trail and leaves your copy disagreeing with the client’s. Keep the invoice as issued and record the payment against it.
Recording a deposit as revenue
On accrual books, money received before delivery is a liability, not income. Recognising it early overstates revenue and can pull tax forward into the wrong period.
Allocating a lump sum without telling the client
You think invoice 101 is settled; they think 104 is. Apply oldest first unless directed, then confirm in writing which invoices the payment cleared.
Deleting small remaining balances
A conceded amount is a credit note; an uncollectable one is a bad debt write-off. Deleting it records neither, and loses the information about which clients actually pay in full.
Frequently Asked Questions
Should a deposit be its own invoice?
Usually yes, particularly where receiving payment creates a tax point. A deposit invoice documents the request properly, then the final invoice shows the full amount with the deposit deducted so the total billed remains correct.
How do I show a partial payment on the invoice?
Do not change the original. Most invoicing software displays payments received against an invoice with a remaining balance underneath. If you must send a document showing the position, send a statement rather than a revised invoice.
What if a client short-pays over a dispute?
Record the payment received and leave the balance outstanding while you resolve it. If you accept their position, issue a credit note for the difference. Do not adjust the invoice — the disagreement and its resolution should both be visible in the record.
Can I charge a late fee on the unpaid portion?
Generally yes, on the outstanding balance rather than the original total, provided your terms or the applicable statutory regime give you the right. Applying it to the full invoice after part-payment is the error to avoid.
Sources & Further Reading
- Recordkeeping for businesses — Internal Revenue Service
- Invoicing and taking payment from customers — GOV.UK
Ready to put this into practice?
Create a professional invoice in your browser — free, no sign-up, no watermark.
Open the Invoice Generator