Short-Paid Payment
A short-paid payment occurs when the beneficiary receives less than the amount expected under the invoice or instruction. The difference may result from bank charges, intermediary deductions, unexpected conversion or an incorrect charge code.
A short payment is one where the supplier is credited less than the invoice amount. In cross-border trade the usual causes are bank charges deducted by intermediaries or the beneficiary bank, a charge instruction such as SHA or BEN that let those fees fall on the beneficiary, or an unexpected currency conversion at an unfavorable rate. Less often, the sender simply instructed the wrong amount.
For a supplier, even a small shortfall can leave an invoice technically unpaid and create reconciliation work, which is why suppliers often ask buyers to cover the difference. For a buyer, repeated shortfalls are a sign that the payment route or charge code does not suit the relationship. Comparing the instructed amount with the credited amount, and reading the deductions shown in tracking data, usually identifies where the money went.
The practical remedies are to agree in the contract who bears bank charges, to use OUR where the supplier must receive the full amount, to send the currency the supplier's account actually holds to avoid conversion, and to ask the provider about deductions on the route. FX spreads are a separate cost from bank fees and should be compared as well.
In practice
Choosing OUR reduces the risk of a short payment but does not eliminate it on every route. Agree in advance with the supplier how any remaining shortfall will be handled.
Example
A buyer sends $12,000 under SHA to pay a $12,000 invoice. An intermediary deducts $20 and the receiving bank $15, so the supplier is credited $11,965 and reports the invoice as $35 short. The buyer pays the difference and switches to OUR for future payments.
See also
- OUR, SHA and BEN Charge CodesOUR, SHA and BEN are instructions describing how bank charges should be allocated between sender and beneficiary. OUR generally places charges on the sender, SHA shares them and BEN places them on the beneficiary, although actual deductions can still depend on the route and institutions.
- Intermediary BankAn intermediary bank sits between the sending bank and beneficiary bank when they lack a direct settlement relationship. It may process, screen, convert or deduct charges from the payment as it passes through the correspondent chain.
- Returned PaymentA returned payment is a transfer sent back toward the payer because it could not be completed or accepted. The returned amount may be reduced by fees or foreign-exchange differences incurred during the original and return journeys.
- FX SpreadStrictly, the FX spread is the bid/ask spread: the gap between the price at which a currency can be bought and the price at which it can be sold at the same moment. It is a property of the market and of liquidity in that pair.