Update:  In addition my blog entry below, you may want to check out opinions on the same subject from two gentlemen I have tremendous respect for, Charles Dominick at Next Level Purchasing and Jason Busch at Spend Matters.  Charles' opinion can be found here and Jason's opinion can be found here.

Have you ever been in a situation where a supplier “forgot” to bill you and—out of the blue—you get an invoice from that supplier for goods or services that were provided months and months ago?  It’s particularly painful to get an old invoice from a supplier when you’re already in a new budget year and you haven’t accrued anything for the old invoice.  Surprise!

Arguably, you should have decent enough financial controls to keep this from happening—like reports that show old purchase orders that haven’t been yet matched with an invoice.  That’s a sign that you may not have gotten an invoice from a supplier and you need to pester the supplier to send you one.  But, even with the best financial controls, “old” invoices still have a way of coming back to haunt folks.

So, in the situation described above, what do you do?

Your initial reaction might be, “There’s no way in hell I’m going to pay an invoice from over a year ago!  The supplier can eat it. It’s their fault!”

Well, you’re right, it may be the supplier’s fault but that doesn’t mean that you’re entitled to not pay the invoice.  Generally speaking, a supplier is entitled to recover the value of the goods or services provided, even if an invoice is submitted substantially late.  So, if in fact you really did receive the goods or services, your state law likely requires you to pay up or else.  For example—and without going into the legalese—in Virginia, a supplier can submit an invoice associated with a written contract up to 5 years late and still have a legal right to get paid.

So, as outraged as you might be, here are some suggestions you might want to consider:

Escalate.  It’s probably the supplier’s accounts receivables department that’s coming after you and they’re likely the ones that boned up in the first place.  Don’t waste your time arguing your case with them.  Instead, contact your supplier's sales representative, tell him or her you’re unhappy and that you want to make sure the supplier’s management is aware of this screw-up.  Escalating the issue helps to set you up for most of the following recommendations.

Prove it.  Ask the supplier to prove that the goods or services were actually provided.  If you honestly can’t remember getting anything from the supplier, and the supplier can’t prove that you did get anything, it’s less likely that the supplier will come after you if you refuse to pay.

Push back.  If the supplier can prove that you did receive the goods or services, make a “good business sense” appeal to the supplier that you shouldn’t have to pay the invoice because it was submitted so late.

Negotiate a lower amount.  If the supplier refuses to forgive the invoice in its entirety, ask the supplier to reduce the amount of the invoice on the basis that it wasn’t budgeted for.

Push the payment out.  If the supplier is adamant that they be paid the full amount of the invoice, ask the supplier if payment can be pushed into your next budget year since you don’t have the amount of the invoice budgeted this year.

Threaten.  Yep, threaten.  But be reasonable first.  If the supplier provided the goods and services, you’re generally happy with the supplier, and paying the old invoice doesn’t constitute undue business hardship, then just grit your teeth and pay the invoice.  However, if you need to threaten that you’ll never, ever do business with the supplier again unless they make the old invoice go away, do it.  It may work.

Refuse to pay.  Even if the supplier is technically entitled to receive payment doesn’t mean—barring court order—that you will pay.  You can always tell the supplier that you refuse to pay and that they can come after you.  If the amount is small enough, they’ll likely write it off instead of spending money to sue you for it.

Circumvent state laws (legally).  As a preventative measure, you can contract around your state laws by including something similar to the following in your contracts with suppliers:

“Supplier acknowledges that it must submit invoices on a timely basis to Customer so as to avoid any unnecessary business hardship on Customer.  Notwithstanding the laws of the state of [insert state here] and Supplier’s rights to collect on debts, Supplier hereby agrees that Customer shall not be required to pay any invoices submitted by Supplier that are submitted by Supplier more than twelve (12) months following the date that the goods or services, as the case may be, were provided by Supplier.”